IFRS Illustrative Financial Statements Banks June 2011: KPMG

IFRS
Illustrative financial statements: Banks

June 2011 kpmg.com/ifrs
About this publication

These illustrative financial statements have been produced by the KPMG International Standards Group (part of KPMG IFRG Limited), and the views expressed herein are those of the KPMG International Standards Group.
Content
The purpose of this publication is to assist you in preparing annual financial statements for a bank or similar financial institution in accordance with IFRSs. It illustrates one possible format for financial statements, based on a fictitious banking group involved in a range of general banking activities; the bank is not a first-time adopter of IFRSs (see Technical guide). This publication illustrates example disclosures for the early adoption of IFRS 9 Financial Instruments (October 2010) and consequential amendments to other standards, which are required to be adopted at the same time. Otherwise it reflects IFRSs in issue at 1 June 2011 that are required to be applied by a bank with an annual period beginning on 1 April 2010 (currently effective requirements). With the exception of IFRS 9 and the amendments to IAS 1 Presentation of Financial Statements resulting from the Improvements to IFRSs 2010, other IFRSs or amendments that are effective for annual periods beginning after 1 April 2010 (forthcoming requirements) have not been adopted early in preparing these illustrative financial statements. This publication illustrates only the financial statements component of a financial report and the requirements of IFRSs as issued by the IASB. However, typically a financial report will include at least some additional commentary by management, either in accordance with local laws and regulations or at the election of the bank (see Technical guide). When preparing financial statements in accordance with IFRSs, a bank should have regard to its local legal and regulatory requirements. This publication does not consider any requirements of a particular jurisdiction. In addition, this publication does not illustrate the disclosure recommendations made by the Financial Stability Board (FSB), formerly Financial Stability Forum, in its reports Enhancing Market and Institutional Resilience and Thematic Review on Risk Disclosure Practices Peer Review available at financialstabilityboard.org, or by the Committee of European Banking Supervisors in the report on banks transparency on activities and products affected by the recent market turmoil available at c-ebs.org. In response to the FSB report Enhancing Market and Institutional Resilience, the IASB established an Expert Advisory Panel (the Panel) to assist the IASB in reviewing best practices in the area of valuation techniques and formulating any necessary additional guidance on valuation methods for financial instruments and related disclosures when markets are no longer active. This publication includes certain illustrative disclosures and explanatory notes from Part 2 of the Panels final report Measuring and disclosing the fair value of financial instruments in markets that are no longer active published on 31 October 2008. To the extent that these disclosures are not specifically required by IFRS 7 Financial Instruments: Disclosures, these additional illustrative disclosures are italicised and, depending on a reporting entitys facts and circumstances, may not be necessary to meet the requirements of IFRSs as issued by the IASB. IFRSs and their interpretation change over time. Accordingly, these illustrative financial statements should not be used as a substitute for referring to the standards and interpretations themselves.
2011 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.
References
The illustrative financial statements are contained on the odd-numbered pages of this publication. The evennumbered pages contain explanatory comments and notes on disclosure requirements of IFRSs. The illustrative examples, together with the explanatory notes, however, are not intended to be seen as a complete and exhaustive summary of all disclosure requirements that are applicable under IFRSs. For an overview of all disclosure requirements that are applicable under IFRSs, see our publication IFRS Disclosure checklist. To the left of each item disclosed, a reference to the relevant currently effective standard is provided; generally the references relate only to disclosure requirements. These illustrative financial statements also contain references to our publication Insights into IFRS (7th Edition 2010/11).
Major changes from the January 2010 edition of Illustrative financial statements: Banks are highlighted by a ouble line running down the left margin of the text within this document. The major change from the d January 2010 edition is the early adoption of IFRS 9.
Whats new in the 2011 illustrative financial statements
Other ways KPMG member firm professionals can help

A more detailed discussion of the general accounting issues that arise from the application of IFRSs can be found in our publication Insights into IFRS. In addition to Insights into IFRS, we have a range of publications that can assist you further, including:

IFRS compared to US GAAP Illustrative financial statements for annual interim periods, and selected industries IFRS Handbooks, which include extensive interpretative guidance and illustrative examples to elaborate or clarify the practical application of a standard New on the Horizon publications, which discuss consultation papers IFRS Practice Issues publications, which discuss specific requirements of pronouncements First Impressions publications, which discuss new pronouncements Newsletters including The Bank Statement, our IFRS Banking Newsletter, which highlight recent developments Disclosure checklist.
KPMGs In the Headlines Issue 2011/21, provides an overview of newly effective standards and other considerations, and is intended to be a reminder of recently issued accounting guidance that may affect financial statements during the interim and annual reporting periods ending on or after 30 June 2011. IFRS-related technical information, including the above In the Headlines, also is available at kpmg.com/ifrs. For access to an extensive range of accounting, auditing and financial reporting guidance and literature, visit KPMGs Accounting Research Online. This web-based subscription service can be a valuable tool for anyone who wants to stay informed in todays dynamic environment. For a free 15-day trial, go to aro.kpmg.com and register today.
Technical guide
Form and content of financial statements
IAS 1 sets out the overall requirements for the presentation of financial statements, including their content and structure. Other standards and interpretations deal with the recognition, measurement and disclosure requirements related to specific transactions and events. IFRSs are not limited to a particular legal framework. Therefore, financial statements prepared under IFRSs often contain supplementary information required by local statute or listing requirements, such as directors reports (see below).
Choice of accounting policies

The accounting policies disclosed in these illustrative financial statements reflect the facts and circumstances of the fictitious banking group on which these financial statements are based. They should not be relied upon for a complete understanding of the requirements of IFRSs and should not be used as a substitute for referring to the standards and interpretations themselves. The accounting policy disclosures appropriate for an entity depend on the facts and circumstances of that entity, including the accounting policy choices an entity makes, and may differ from the disclosures presented in these illustrative financial statements. The recognition and measurement requirements of IFRSs are discussed in our publication Insights into IFRS.
Reporting by directors
Generally local laws and regulations determine the extent of reporting by directors in addition to the presentation of financial statements. IAS 1 encourages, but does not require, entities to present, outside the financial statements, a financial review by management. The review describes and explains the main features of the entitys financial performance and financial position, and the principal uncertainties it faces. Such a report may include a review of:
the main factors and influences determining financial performance, including changes in the environment in which the entity operates, the entitys response to those changes and their effect, and the entitys policy for investment to maintain and enhance financial performance, including its dividend policy; the entitys sources of funding and its targeted ratio of liabilities to equity; and the entitys resources not recognised in the statement of financial position in accordance with IFRSs.
On 8 December 2010 the IASB published IFRS Practice Statement Management Commentary, which proposes a framework for the preparation of management commentary that accompanies financial statements prepared in accordance with IFRSs. An entity is not required to comply with the framework for the preparation and presentation of management commentary in order to assert compliance with IFRSs.
First-time adopters of IFRSs

These illustrative financial statements assume that the entity is not a first-time adopter of IFRSs. IFRS 1 Firsttime Adoption of International Financial Reporting Standards applies to an entitys first financial statements prepared in accordance with IFRSs. IFRS 1 requires extensive disclosures explaining how the transition from previous GAAP to IFRSs affects the reported financial position, financial performance and cash flows of an entity. These disclosures include reconciliations of equity and reported total comprehensive income (or profit or loss if the entity did not previously report total comprehensive income) at the date of transition to IFRSs and at the end of the comparative period presented in the entitys first IFRS financial statements, explaining material adjustments to the statements of financial position, changes in equity and comprehensive income, and identifying separately the correction of any errors made under previous GAAP An entity that presented . a statement of cash flows under previous GAAP also explains any material adjustments to its statement of cash flows. For more information see KPMGs Illustrative financial statements for first-time adopters, published in February 2010, or Illustrative condensed interim financial statements: First-time adoption, published in July 2011.
Note Reference Explanatory note 1.

IAS 1.10
In these illustrative financial statements, the titles of the statements are consistent with the titles used in IAS 1. However, these terms are not mandatory and different titles are permitted. The difference between the single-statement approach and the two-statement approach with respect to the statement of comprehensive income is further explained in explanatory note 1 on page 8 that accompanies the consolidated statement of comprehensive income.
2.
Contents
Reference
IAS 1.10, 49
Page Consolidated financial statements Consolidated statement of financial position1 Consolidated statement of comprehensive income1 (single statement approach)2 Consolidated statement of changes in equity1 Consolidated statement of cash flows1 Notes to the consolidated financial statements Appendix I Consolidated income statement and consolidated statement of comprehensive income (two-statement approach)2
7 9 13 17 21
237
Illustrative financial statements: Banks June 2011

IAS 1.45
The presentation and classification of items in the financial statements is retained from one year to the next unless changes are required by a new standard or interpretation, or it is apparent, following a significant change to an entitys operations or a review of its financial statements, that another presentation or classification would be more appropriate. The entity also considers the criteria for selection and application of accounting policies in IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. An additional statement of financial position and related notes are presented as at the beginning of the earliest comparative period following a change in accounting policy requiring retrospective application and restatement of comparatives, the correction of an error, or the reclassification of items in the financial statements. The standard provides no further guidance in terms of how the above requirement should be interpreted. In our view, the requirement to present a third statement of financial position should be interpreted having regard to materiality based on the particular facts and circumstances. In our view, this requirement for related notes should be interpreted as requiring disclosure of those notes that are relevant to the reason why the third statement of financial position is presented, i.e. not all notes are required in every circumstance. This issue is discussed in our publication Insights into IFRS (2.1.35). In these illustrative financial statements an additional statement of financial position is not required to be presented following the adoption of IFRS 3 Business Combinations (2008), IAS 27 Consolidated and Separate Financial Statements (2008) and IFRS 9 as comparative information has not been restated. The adoption of IFRS 3 and IAS 27 has been applied prospectively and the Group has elected to apply IFRS 9 from 1 April 2010 without restatement of comparatives. If an entity adopts IFRS 9 for reporting periods beginning before 1 January 2012, then this election is available. Additional line items, headings and subtotals are presented separately in the statement of financial position when such presentation is relevant to an understanding of the entitys financial position. The judgement used is based on an assessment of the nature and liquidity of the assets, the function of assets within the entity, as well as the amounts, nature and timing of liabilities. Additional line items may include, for example, other assets for the inclusion of prepayments. IAS 1 does not prescribe the order or format in which an entity presents items. Additional line items are included when the size, nature or function of an item or aggregation of similar items is such that separate presentation is relevant to an understanding of the entitys financial position and the descriptions used, and the ordering of items or aggregation of similar items may be amended according to the nature of the entity and its transactions to provide information that is relevant to an understanding of an entitys financial position. Assets and liabilities are offset only when required or permitted by a standard or interpretation. A bank or similar financial institution usually presents a statement of financial position showing assets and liabilities in their broad order of liquidity because such presentation usually provides reliable and more relevant information than separate current and non-current classifications. For each asset and liability line item that combines amounts expected to be recovered or settled within (1) no more than 12 months after the end of the reporting period, and (2) more than 12 months after the end of the reporting period, an entity discloses in the notes the amount expected to be recovered or settled after more than 12 months (see notes 22, 23, 29, 30 and 31). The carrying amounts of each of the categories of financial assets and financial liabilities in paragraph 8 of IFRS 7 are required to be disclosed in either the statement of financial position or the notes. In these illustrative financial statements this information is presented in the notes.
IAS 1.10, 39
2.
IAS 1.55, 58
IAS 1.57
IAS 1.32
3.
IAS 1.60, 61, 63
4.
IFRS 7 .8
Reference
IAS 1.10(a), 60, 113
Consolidated statement of financial position1, 2, 3, 4

As at 31 March
In millions of euro Note 2011 2010
IAS 1.54(i) IAS 1.54(d), 39.37(a) IAS 1.54(d) IAS 1.54(d) IAS 1.54(d) IAS 1.54(d) IAS 1.54(d) IAS 1.54(n) IAS 1.54(a) IAS 1.54(c) IAS 1.54(o)
Assets Cash and cash equivalents Pledged trading assets Non-pledged trading assets Derivative assets held for risk management Loans and advances to banks Loans and advances to customers Investment securities Current tax assets Property and equipment Intangible assets Deferred tax assets Other assets Total assets Liabilities Trading liabilities Derivative liabilities held for risk management Deposits from banks Deposits from customers Debt securities issued Subordinated liabilities Provisions Deferred tax liabilities Other liabilities Total liabilities Equity Share capital and share premium Retained earnings Reserves Total equity attributable to equity holders of the Bank Non-controlling interests Total equity Total liabilities and equity
18 19 19 20 21 22 23 24 25 26 27
2,972 928 15,734 858 5,572 63,070 6,302 49 409 275 319 711 97 ,199
2,992 878 14,890 726 4,707 56,805 5,269 53 378 259 296 563 87 ,816
IAS 1.54(m) IAS 1.54(m) IAS 1.54(m) IAS 1.54(m) IAS 1.54(m) IAS 1.54(m) IAS 1.54(l) IAS 1.54(o)
19 20 28 29 30 31 32 26 33
826 828 17 ,878 53,646 11,227 5,642 90 74 450 90,661
852 789 15,430 48,904 10,248 4,985 84 124 431 81,847
IAS 1.54(r) IAS 1.54(r) IAS 1.54(r) IAS 1.54(r) IAS 1.54(q), 27 .27
34
2,725 3,673 (16) 6,382 156 6,538 97 ,199
2,695 2,948 198 5,841 128 5,969 87 ,816
The notes on pages 23 to 235 are an integral part of these consolidated financial statements.

IAS 1.10(b)
A complete set of financial statements comprises, as one of its statements, a statement of comprehensive income for the period. Total comprehensive income is the changes in equity during a year other than those changes resulting from transactions with owners in their capacity as owners, which is presented either in:

IAS 1.81
one statement, i.e. a statement of comprehensive income; or two statements, i.e. a separate income statement and a statement beginning with profit or loss and presenting components of other comprehensive income.
IAS 1.81(a)
This illustration is based on a single statement of comprehensive income. The two-statement approach is illustrated in Appendix I. Items of income and expense are offset only when required or permitted by a standard or an interpretation. IFRS 7 allows the net presentation of certain gains and losses on financial assets and financial liabilities. No items of income or expense may be presented as extraordinary. The nature and amounts of material items are disclosed as a separate line item in the statement of comprehensive income or in the notes. This issue is discussed in our publication Insights into IFRS (4.1.82 86). An entity presents additional line items, headings and subtotals when this is relevant to an understanding of its financial performance. This publication does not illustrate the presentation of investments in equity accounted investees and discontinued operations. For an illustration of such disclosures, see the August 2010 edition of our publication Illustrative financial statements.
2.
IFRS 7 .20
IAS 1.87
IAS 1.85
3.
IAS 1.99, 104
This analysis of expenses is based on the nature of the expenses. The analysis of expenses also may be presented based on the functions within the entity, with additional disclosure of information about the nature of the expenses, if this provides information that is reliable and more relevant. Individual material items are classified in accordance with their nature or function, consistent with the classification of items that are not material individually. This issue is discussed in our publication Insights into IFRS (4.1.30). IFRSs do not specify whether revenue can be presented only as a single line item in the statement of comprehensive income, or whether an entity also may include the individual components of revenue in the statement of comprehensive income, with a sub-total for revenue from continuing operations. In these illustrative financial statements, the most relevant measure of revenue is considered to be the sum of net interest income, net fee and commission income, net trading income, net income from other financial instruments at fair value through profit or loss, other revenue and net gain/(loss) arising from derecognition of financial assets measured at amortised cost. However, other presentations are possible.
4.
IAS 1.82(a)
Reference
Consolidated statement of comprehensive income1, 2 (single statement approach)

For the year ended 31 March
IAS 1.10(b), 81(a) IFRS 7 .20(b) IFRS 7 .20(b), IAS 1.82(b)
Interest income Interest expense3 Net interest income4
8 8
3,301 (1,406) 1,895
3,528 (1,686) 1,842 759 (135) 624 912 81 371 3,830 10 (334) (1,984) (326) (39) (485) 672 (118) 554
IFRS 7 .20(c) IFRS 7 .20(c)
Fee and commission income Fee and commission expense3 Net fee and commission income4 Net trading income4 Net income from other financial instruments at fair value through profit or loss4 Other revenue4 Net loss arising from derecognition of financial assets measured at amortised cost4 Revenue4 Other income Net impairment loss on financial assets3 Personnel expenses3 Operating lease expenses3 Depreciation and amortisation3 Other expenses3 Profit before tax Tax expense Profit for the year
9 9
854 (179) 675 1,196 172 302 (9) 4,231 18 (330) (2,282) (344) (47) (397) 849 (187) 662
IFRS 7 .20(a) IFRS 7 .20(a) IFRS 7 .20(a) IAS 1.82(aa) IFRS 7 .20A IAS 1.82(a)
10 11 12 13
IFRS 7 .20(e) IAS 1.99 IAS 17 .35(c) IAS 1.99, 38.118(d) IAS 1.99 IAS 1.85 IAS 1.82(d), 12.77 IAS 1.82(f)
21, 22, 23 14 24, 25 15
16
10

IAS 1.82(g),(h) An
entity presents each component of other comprehensive income by nature. The only exception to this principle relates to equity-accounted investees. An entitys share of the other comprehensive income of an equity accounted investee is presented as a separate line item.
2.
IAS 1.91
Individual components of other comprehensive income may be presented either net of related tax effects or before related tax effects, with an aggregate amount presented for tax. In these illustrative financial statements we have illustrated the former approach. An entity may present reclassification adjustments directly in the statement of comprehensive income or in the notes. In these illustrative financial statements we have illustrated the presentation directly in the statement of comprehensive income. Earnings per share based on alternative measures of earnings also may be given if considered necessary, but should be presented in the notes to the financial statements only and not in the statement of comprehensive income. This issue is discussed in our publication Insights into IFRS (5.3.370.55). Basic and diluted earnings per share are presented even if the amounts are negative (a loss per share). Diluted earnings per share also are presented even if it equals basic earnings per share and this may be accomplished by the presentation of basic and diluted earnings per share in one line item as illustrated here. This issue is discussed in our publication Insights into IFRS (5.3.370.50).
3.
IAS 1.94
4.
IAS 33.73
5.
IAS 33.67 69 ,
11
Reference
Consolidated statement of comprehensive income (continued) (single statement approach)

Other comprehensive income, net of income tax1, 2 IAS 21.52(b) Foreign currency translation differences for foreign operations IAS 21.52(b) Net gain/(loss) on hedges of net investments in foreign operations Cash flow hedges: IFRS 7 .23(c) Effective portion of changes in fair value 16 IFRS 7 .23(d), IAS 1.92 Net amount transferred to profit or loss3 16 Net change of financial assets measured at fair value through other comprehensive income: IFRS 7 .20(a)(ii) Net change in fair value on available-for-sale financial assets 16 IFRS 7 .20(a)(ii), Net amount transferred to profit or loss (available-for-sale IAS 1.92 financial assets)3 16 IFRS 7 .20(a)(vii) Net gain/(loss) on investments in equity instruments designated as at fair value through other comprehensive income 16 IFRS 9 B5.7 .8 hange in fair value of financial liabilities due to own credit risk 16 C Other comprehensive income for the year, net of tax 34
IAS 1.82(g) IAS 1.82(i)
(40) 36 (17) 10
23 (15) (14) 8
2 (7) (16) 646
(106) 83 (21) 533
Total comprehensive income for the year Profit attributable to: Equity holders of the Bank Non-controlling interests Profit for the year Total comprehensive income attributable to: Equity holders of the Bank Non-controlling interests Total comprehensive income for the year
IAS 1.83(a)(ii) IAS 1.83(a)(i)
634 28 662
528 26 554
IAS 1.83(b)(ii) IAS 1.83(b)(i)
618 28 646 17 0.35
507 26 533 0.29
IAS 33.66
Basic and diluted earnings per share (euro)4, 5
12
Note Reference Explanatory note 1. In these illustrative financial statements we have early adopted the amendment to IAS 1 from the Improvements to IFRSs 2010 that allows entities to show the analysis of other comprehensive income by item for each component of equity either in the statement of changes in equity or in the notes. In these illustrative financial statements we present this information in the notes. For an example of a consolidated statement of changes in equity presenting the disaggregation of changes in each component of equity arising from transactions recognised in other comprehensive income, see Appendix III in the August 2010 edition of our publication Illustrative financial statements. IFRS 2 Share-based Payment does not address specifically how share-based payment transactions are presented within equity, e.g. whether an increase in equity in connection with a share-based payment transaction is presented in a separate line item within equity or within retained earnings. In our view, either approach would be allowed under IFRSs. In these illustrative financial statements the increase in equity recognised in connection with a sharebased payment transaction is presented within retained earnings. This issue is discussed in our publication Insights into IFRS (4.5.280.10 20). When equity instruments of a subsidiary have been granted to a counterparty in a sharebased payment arrangement, the credit entry in equity in the consolidated financial statements of the parent is allocated to non-controlling interests. This is because the definition of non-controlling interest in IAS 27 refers to the equity in a subsidiary not attributable, directly or indirectly, to a parent. This issue is discussed in our publication Insights into IFRS (4.5.1099.10).
2.
Reference
Attributable to equity holders of the Bank
Consolidated statement of changes in equity1
IAS 1.108, 109
In millions of euro Note
Share Share capital premium
Translation Hedging reserve reserve Fair value Retained reserve earnings Noncontrolling Total interest
Total equity
Balance at 1 April 2009
2,256
439
64
(79)
234
2,679
5,593
102
5,695
IAS 1.106(d)(i)
34
IAS 1.106(a)
Total comprehensive income for the year Profit or loss Other comprehensive income, net of tax Total comprehensive income for the year (6) (6) 8 8 (23) (23) 528 528 528 (21) 507
26 26
554 (21) 533
IAS 1.106(d)(iii)
IAS 1.106(d)(iii)
(85) 2,256 439 72 -
211
25 (284) (259) 2,948
25 (284) (259) 5,841
128
25 (284) (259) 5,969

IAS 1.106(d)(iii)
Transactions with equity holders, recognised directly in equity Contributions by and distributions to equity holders Share-based payment transactions2 Dividends to equity holders Total contributions by and distributions to equity holders
Balance at 31 March 2010
13
14
IFRS 9. 7 .2.14
2.
IAS 1.106
f an entity adopts IFRS 9 for reporting periods beginning before 1 January 2012, then it can I lect not to restate prior periods. In these illustrative financial statements, the Group has e elected to apply the new standard from 1 April 2010 without restatement of comparatives. As a result, the difference between the carrying amount of financial assets and financial liabilities prior to the adoption of IFRS 9 and the new carrying amount calculated applying the standard as at 1 April 2010 is recognised in opening retained earnings (or another component of equity as appropriate at that date). When a change in accounting policy, either voluntarily or as a result of the initial application of a standard, has an effect on the current period or any prior period, an entity presents the effects of retrospective application or retrospective restatement recognised in accordance with IAS 8 in the statement of changes in equity. The illustrative examples to IAS 1 demonstrate this in relation to a change in accounting policy, as does our publication Insights into IFRS (2.8.40.90) in relation to an error.
Reference
Attributable to equity holders of the Bank
Consolidated statement of changes in equity (continued)
IAS 1.108, 109
In millions of euro Note
Share Share capital premium
Translation Hedging reserve reserve
Fair value reserve
Liability credit Retained reserve earnings
Noncontrolling Total interest
Total equity
Impact of adopting IFRS 9 at 1 April 20101, 2 Restated balance at 1 April 2010
Balance at 1 April 2010 2,256 2,256 439 439 72 72 (85) (85) 211 (208) 3 10 10 2,948 300 3,248 5,841 102 5,943
128 128
5,969 102 6,071
IAS 1.106(d)(i)
(4) (7) 2 (7) 634
(4)
(7)
(7)
634 -
634 (16) 618
28 28
662 (16) 646
IAS 1.106(a)
Total comprehensive income for the year Profit or loss Other comprehensive income 34 Total comprehensive income for the year, net of tax
IAS 1.106(d)(iii)
IAS 1.106(d)(iii)
IAS 1.106(d)(iii)
3 466 2,259 27 68 (92)
3 -
27 -
75 (284) (209) 3,673
75 30 (284) (179) 6,382
156
75 30 (284) (179) 6,538
IAS 1.106(d)(iii)
Transactions with equity holders, recognised directly in equity Contributions by and distributions to equity holders Share-based payment transactions Share options exercised Dividends to equity holders Total contributions by and distributions to equity holders
Balance at 31 March 2011
15
16

IAS 7 .18, 19
In these illustrative financial statements cash flows from operating activities are presented using the indirect method, whereby profit or loss is adjusted for the effects of non-cash transactions, accruals and deferrals, and items of income or expense associated with investing or financing cash flows. An entity also may present operating cash flows using the direct method, disclosing major classes of cash receipts and payments related to operating activities. An example of presentation using the direct method is provided in Appendix II of the August 2010 edition of our publication Illustrative financial statements. An entity is encouraged, but not required, to disclose:
IAS 7 .50(b), (c)
the aggregate amounts of the cash flows from each of operating, investing and financing activities related to interests in joint ventures reported using proportionate consolidation; and the aggregate amount of cash flows that represent increases in operating capacity separately from those cash flows that are required to maintain operating capacity.
2.
IAS 7 .22, 24
Cash flows from operating, investing or financing activities may be reported on a net basis when the cash receipts and payments are on behalf of customers and the cash flows reflect the activities of the customer, or when the cash receipts and payments are for items which turn over quickly, the amounts are large and the maturities are short. Additionally, certain cash flows for a financial institution, such as acceptance and repayment of fixed maturity date deposits, placement of deposits with and withdrawal of deposits from other financial institutions and cash flows associated with loans to and repayments by customers, may be reported on a net basis. Major classes of gross cash receipts and gross cash payments arising from investing and financing activities are disclosed separately, except to the extent that the cash flows are reported on a net basis. In these illustrative financial statements gross receipts from the sale of, and gross payments to acquire, investment securities have been classified as components of cash flows from investing activities as they do not form part of the Groups dealing or trading operations. Receipts from and payments for futures, forwards, options and swap contracts are presented as part of either investing or financing activities, provided that they are not held for dealing or trading purposes, in which case they are presented as part of operating activities. However, when a contract is accounted for as a hedge of an identifiable position, the cash flows of the contract are classified in the same manner as the cash flows of the positions being hedged. This issue is discussed in our publication Insights into IFRS (2.3.60.10). If hedge accounting is not applied to a derivative instrument, then it is preferable that the gains or losses on the derivative instrument are not presented as an adjustment to line items related to the hedged item, even if the derivative instrument is intended to be an economic hedge of these items. However, in our view derivative gains and losses may be shown in the statement of comprehensive income as either operating or financing items depending on the nature of the item being economically hedged. In our view, the possibilities for the presentation in the statement of comprehensive income also apply to the presentation in the statement of cash flows. This issue is discussed in our publication Insights into IFRS (5.6.220.110 and .120).
IAS 7 .21
3.
IAS 7 .16(c), (d)
IAS 7 .16(h), (g)
4.
In our view, to the extent that borrowing costs are capitalised in respect of qualifying assets, the cost of acquiring those assets should be split in the statement of cash flows. This is consistent with the requirement to classify separately the different components of a single transaction. This issue is discussed in our publication Insights into IFRS (2.3.50.40).
IAS 7 .35
5.
Taxes paid are classified as operating activities unless it is practicable to identify them with, and therefore classify them as, financing or investing activities. This issue is discussed in our publication Insights into IFRS (2.3.50.20).
17
Reference
IAS 1.10(d), 113
Consolidated statement of cash flows1, 2

IAS 7 .18(b)
Cash flows from operating activities3 Profit for the year Adjustments for: Depreciation and amortisation Net impairment loss on investment securities Net impairment loss on loans and advances Net interest income Net gain on investment securities at fair value through profit or loss Net loss on debt securities issued at fair value through profit or loss Net loss on sale of available-for-sale securities Dividends on available-for-sale securities ividends on equity instruments designated as at D air value through other comprehensive income f Equity-settled share-based payment transactions Tax expense
662 24, 25 23 21, 22 8 11 11 12 12 12 14 16 47 125 205 (1,895) (201) 154 (2) 75 187 (643) (894) (132) (872) (6,463) (163) (26) 39 2,448 4,742 34 (1,930) 3,313 2 (1,415) (255) (285)
554 39 114 220 (1,842) (46) 137 69 (8) 25 118 (620) (1,132) (104) (388) (6,473) (54) 34 35 2,067 4,245 37 (2,353) 3,287 8 (1,655) (228) (941)
Change in trading assets Change in derivative assets held for risk management Change in loans and advances to banks Change in loans and advances to customers Change in other assets Change in trading liabilities Change in derivative liabilities held for risk management Change in deposits from banks Change in deposits from customers Change in other liabilities and provisions
19 20 21 22 19 20 28 29
IAS 7 .31, 33 IAS 7 .31, 33 IAS 7 .31, 33 IAS 7 .35 IAS 7 .10 IAS 7 .21 IAS 7 .16(c) IAS 7 .16(d) IAS 7 .16(a) IAS 7 .16(b) IAS 7 .16(a) IAS 7 .10
Interest received Dividends received Interest paid4 Tax paid5 Net cash used in operating activities Cash flows from investing activities3, 4 Acquisition of investment securities Proceeds from sale of investment securities Acquisition of property and equipment Proceeds from the sale of property and equipment Acquisition of intangible assets Net cash used in investing activities
24 24 25
(1,565) 712 (88) 36 (42) (947)
(487) 444 (63) 18 (34) (122)
18
Note Reference Explanatory note 1. 2.

IAS 7 .31, 34
See explanatory note 3 on page 16. IFRSs do not specify the classification of cash flows from interest and dividends received and paid, and an entity is required to choose its own policy for classifying interest and dividends paid as either operating or financing activities, and interest and dividends received as either operating or investing activities. The presentation is selected to present these cash flows in a manner that is most appropriate for the business or industry. The method selected is applied consistently. This issue is discussed in our publication Insights into IFRS (2.3.50). When applicable, an entity presents a reconciliation of cash and cash equivalents reported in its statement of cash flows with those presented in the statement of financial position. In these illustrative financial statements the amounts presented in the statement of financial position match the amounts presented in the statement of cash flows and therefore no reconciliation is presented.
3.
IAS 7 .45
19
Reference
IAS 1.10(d)
Consolidated statement of cash flows (continued)

IAS 7 .21 IAS 7 .17(c) IAS 7 .17(d) IAS 7 .17(c) IAS 7 .17(a) IAS 7 .31, 34 IAS 7 .10
Cash flows from financing activities1 Proceeds from issue of debt securities Repayment of debt securities Proceeds from issue of subordinated liabilities Proceeds from exercise of share options Dividends paid2 Net cash from financing activities Net increase decrease in cash and cash equivalents Cash and cash equivalents at the beginning of the reporting period Effect of exchange rate fluctuations on cash and cash equivalents held Cash and cash equivalents at 31 March3
34 34
1,058 (233) 657 30 (284) 1,228 (4)
762 (99) 651 (284) 1,030 (33) 3,040 (15) 2,992
18
2,992 (16) 2,972
IAS 7 .28
18
20

IAS 1.7
The notes to the financial statements include narrative descriptions or break-downs of amounts disclosed in the primary statements. They also include information about items that do not qualify for recognition in the financial statements.
21
Notes to the consolidated financial statements1

Page 1. Reporting entity 2. Basis of preparation 3. Significant accounting policies 4. Financial risk management (a) Introduction and overview (b) Credit risk (c) Liquidity risk (d) Market risks (e) Operational risk (f) Capital management 23 23 35 83 83 83 99 107 115 117 123 143 153 153 16. Tax expense 17 Earnings per share . 18. Cash and cash equivalents 19. Trading assets and liabilities 20. Derivatives held for risk management 21. Loans and advances to banks 22. Loans and advances to customers 23. Investment securities 24. Property and equipment 25. Intangible assets 26. Deferred tax assets and liabilities 27 Other assets . 28. Deposits from banks 29. Deposits from customers 30. Debt securities issued 159 31. Subordinated liabilities 8. Net interest income 9. Net fee and commission income 10. Net trading income 163 32. Provisions 165 33. Other liabilities 165 34. Capital and reserves 11. Net income from other financial instruments at fair value through profit or loss 167 12. Other revenue 169 35. Contingencies 36. Securitisations 37 Group entities . 38. Related parties 39. Lease commitments 40. Subsequent event 225 229 229 231 233 235 235 219 217 217 Page 175 177 179 179 187 189 191 195 203 205 209 211 213 213 215
5. Use of estimates and judgements 6. Segment reporting 7 Financial assets and liabilities . (a) Accounting classifications and fair values
b) Classification of financial assets on the ( date of initial application of IFRS 9
13. Net gain/(loss) arising from derecognition of financial assets measured at amortised cost 169 14. Personnel expenses 15. Other expenses 169 175
22

IAS 1.36
When the entity changes its end of reporting period and annual consolidated financial statements are presented for a period longer or shorter than one year, the entity discloses the reason for the change and the fact that comparative amounts presented are not entirely comparable. In this and other cases an entity may wish to present pro forma information that is not required by IFRSs, for example pro forma comparative financial statements prepared as if the change in the end of the reporting period were effective for all periods presented. The presentation of pro forma information is discussed in our publication Insights into IFRS (2.1.80).
2.
If financial statements are prepared on the basis of national accounting standards that are modified or adapted from IFRSs and are made publicly available by publicly traded companies, then the International Organization of Securities Commissions (IOSCO) has recommended including the following minimum disclosures:
a clear and unambiguous statement of the reporting framework on which the accounting policies are based; a clear statement of the entitys accounting policies on all material accounting areas; an explanation of where the respective accounting standards can be found; a statement explaining that the financial statements are in compliance with IFRSs as issued by the IASB, if this is the case; and a statement explaining in what regard the standards and the reporting framework used differ from IFRSs as issued by the IASB, if this is the case.
3.
IAS 1.19, 20, 23
In the extremely rare circumstances in which management concludes that compliance with a requirement of a standard or an interpretation would be so misleading that it would conflict with the objective of financial statements set out in the Framework for the Preparation and Presentation of Financial Statements, an entity may depart from the requirement if the relevant regulatory framework requires or otherwise does not prohibit such a departure. Extensive disclosures are required in these circumstances. This issue is discussed in our publication Insights into IFRS (1.1.130.10 50). An entity discloses the date when the financial statements were authorised for issue and who gave that authorisation. If an entitys owners or others have the power to amend the financial statements after their issue, then the entity discloses that fact. Taking account of specific requirements in its jurisdiction, an entity discloses any material uncertainties related to events or conditions that may cast significant doubt upon the entitys ability to continue as a going concern, and whether they arise during the period or after the end of the reporting period. For example disclosures for entities that require going concern disclosures, see Appendix V in the August 2010 edition of our publication Illustrative financial statements.
4.
IAS 10.17
5.
IAS 1.25, 10.16(b)
23
Reference
IAS 1.10(e) IAS 1.51(a)-(c), 138(a), (b)
Notes to the consolidated financial statements

1. Reporting entity [Name] (the Bank) is a company domiciled in [country]. The address of the Banks registered office is [address]. The consolidated financial statements of the Bank as at and for the year ended 31 March 20111 comprise the Bank and its subsidiaries (together referred to as the Group and individually as Group entities). The Group primarily is involved in investment, corporate and retail banking, and in providing asset management services.
IAS 1.112(a) IAS 1.16
2. Basis of preparation2 (a) Statement of compliance The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board (IASB).3 The consolidated financial statements were authorised for issue by the board of directors on [date].4 (b) Basis of measurement5 The consolidated financial statements have been prepared on the historical cost basis except for the following material items in the statement of financial position:

IAS 10.17
IAS 1.117(a)
assets and liabilities held for trading are measured at fair value; financial instruments designated at fair value through profit or loss are measured at fair value; investments in equity instruments are measured at fair value; other financial assets not held in a business model whose objective is to hold assets to collect contractual cash flows or whose contractual terms do not give rise solely to payments of principal and interest are measured at fair value (this policy is applicable from 1 April 2010); recognised financial assets and financial liabilities designated as hedged items in qualifying fair value hedge relationships are adjusted for changes in fair value attributable to the risk being hedged; liabilities for cash-settled share-based payment arrangements are measured at fair value; the liability for defined benefit obligations is recognised as the present value of the defined benefit obligation less the net total of the plan assets, plus unrecognised actuarial gains, less unrecognised past service cost and unrecognised actuarial losses; and available-for-sale financial assets are measured at fair value (policy applicable prior to 1 April 2010).
24

IAS 21.53
If the consolidated financial statements are presented in a currency different from the parent entitys functional currency, then an entity discloses that fact, its functional currency, and the reason for using a different presentation currency. If the consolidated financial statements are presented in a hyperinflationary functional currency, then an entity discloses:
IAS 29.39
the fact that the consolidated financial statements have been restated for changes in the general purchasing power of the functional currency and as a result are stated in terms of the measuring unit current at the end of the reporting period; whether the consolidated financial statements are based on a historical cost approach or a current cost approach; and the identity and level of the price index at the end of the reporting period and the movement in the index during the current and the previous reporting period.
IAS 21.54
If there is a change in the functional currency of either the entity or a significant foreign operation, then the entity discloses that fact together with the reason for the change. An entity discloses the judgements, apart from those involving estimations, that management has made in the process of applying the entitys accounting policies and that have the most significant effect on the amounts recognised in the financial statements. The examples that are provided in paragraphs 123 and 124 of IAS 1 indicate that such disclosure is based on qualitative data. An entity discloses the assumptions it makes about the future, and other major sources of estimation uncertainty at the end of the reporting period, that have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next financial year. The examples that are provided in paragraph 129 of IAS 1 indicate that such disclosure is based on quantitative data, e.g. appropriate discount rates.
2.
IAS 1.122
IAS 1.125
25
Reference
IAS 1.112(a) IAS 1.51(d), (e)

2. Basis of preparation (continued) (c) Functional and presentation currency1 These consolidated financial statements are presented in euro, which is the Banks functional currency. Except as otherwise indicated, financial information presented in euro has been rounded to the nearest million. (d) Use of estimates and judgements2 The preparation of the consolidated financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.
IAS 1.122, 125
Information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the consolidated financial statements are described in notes 4 and 5.
26

When a change in accounting policy is the result of the adoption of a new, revised or amended IFRS an entity applies the specific transitional requirements in that IFRS. However, in our view an entity nonetheless should comply with the disclosure requirements of IAS 8 to the extent that the transitional requirements do not include disclosure requirements. Even though it could be argued that the disclosures are not required because they are set out in the IAS 8 requirements for voluntary changes in accounting policy, we believe that they are necessary in order to give a fair presentation. This issue is discussed in our publication Insights into IFRS (2.8.20).
IAS 1.10(f) 8.28, 29
2.
When a change in accounting policy, either voluntarily or as a result of the initial application of a standard, has an effect on the current period or any prior period, an entity discloses, among other things, the amount of the adjustment for each financial statement line item affected. If any prior period errors are corrected in the current years financial statements, then an entity discloses:

IAS 8.49
the nature of the prior period error; to the extent practicable, the amount of the correction for each financial statement line item affected, and basic and diluted earnings per share for each period presented; the amount of the correction at the beginning of the earliest prior period presented; and if retrospective restatement is impracticable for a particular prior period, then the circumstances that led to the existence of that condition and a description of how and from when the error has been corrected.
3. 4.
IAS 8.5
Accounting policies are the specific principles, bases, conventions, rules and practices that an entity applies in preparing and presenting financial statements.
IFRS 9. 7 .1.1
IFRS 9. 7 .3.2
5.
IFRS 9. 7 .2.14
6.
The chapters of IFRS 9 released by 1 June 2011 were issued in two parts: IFRS 9 (2009) was issued in November 2009 and provides guidance on classification and measurement of financial assets; and IFRS 9 (2010) was issued in October 2010 and expands IFRS 9 (2009) by including also guidance on classification and measurement of financial liabilities. The effective date for both parts is periods beginning on or after 1 January 2013 with early application permitted. An entity applying IFRS 9 early may implement IFRS 9 (2009) or IFRS 9 (2010). If an entity applies IFRS 9 early, then it discloses the fact. If an entity adopts IFRS 9 for reporting periods beginning before 1 January 2012, then it can elect not to restate prior periods. In these illustrative financial statements the Group has taken this option and has elected not to restate comparatives. As a result, the difference between the previous carrying amount and the carrying amount applying the new standard is recognised in opening retained earnings (or another component of equity as appropriate as at 1 April 2010). This issue is discussed in our publication Insights into IFRS (3.6A.460.10). Since the Group has elected not to restate comparatives, different accounting policies apply to financial assets and liabilities pre- and post-adoption of the standard. Therefore, both the pre- and post-adoption accounting policies for financial assets are disclosed. The transition provision of IFRS 9 requires identification of the date of initial application of the standard. IFRS 9 does not define date of initial application beyond stating that it is the date when an entity first applies the requirements of this IFRS. Identification of the date of initial application is relevant to several assessments necessary to apply IFRS 9 and may have important implications. This issue is discussed in our publication Insights into IFRS (3.6A.360). In our view, an entity has the following choices as to its date of initial application if the reporting period in which IFRS 9 (2009) or IFRS 9 is adopted begins before 1 January 2011: for the adoption of IFRS 9 (2009), the date of initial application can be any date from 12 November 2009 (the date of issue of IFRS 9 (2009)) and 31 December 2010; or for the adoption of IFRS 9 issued in October 2010, the date of initial application can be any date between 28 October 2010 (the date of issue of IFRS 9) and 31 December 2010. If the reporting period in which IFRS 9 (2009) or IFRS 9 is adopted begins on or after 1 January 011, then the date of initial application is the beginning of the reporting period in which IFRS 9 is adopted. 2
27
Reference
IAS 1.112(a)

2. Basis of preparation (continued) (e) Changes in accounting policies1, 2, 3 (i) Financial assets and liabilities (early adoption of IFRS 9)4, 5 he Group has early adopted IFRS 9 Financial Instruments issued in October 2010 with a date T of initial application of 31 December 2010.6
IFRS 9.B5.7 .5, B5.7 .8
he requirements of IFRS 9 represent a significant change from the classification and T measurement requirements in IAS 39 Financial Instruments: Recognition and Measurement in respect of financial assets. IFRS 9 contains two primary measurement categories for financial assets: amortised cost and fair value. Unless it is designated as measured at fair value, a financial asset is measured at amortised cost if it is held within a business model whose objective is to hold assets in order to collect contractual cash flows, and the assets contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal outstanding. All other financial assets are measured at fair value. The standard eliminates the existing IAS 39 categories of held to maturity, available-for-sale and loans and receivables. IFRS 9 requires that derivatives embedded in contracts with a host that is a financial asset within the scope of the standard are not separated; instead the hybrid financial instrument is assessed in its entirety as to whether it should be measured at amortised cost or fair value. or investments in equity instruments that are not held for trading, IFRS 9 allows an irrevocable F election, on an investment-by-investment basis, to present fair value changes from the investment in other comprehensive income. Dividends on such investments are generally recognised in profit or loss. IFRS 9 requires that the effects of changes in credit risk of liabilities designated as at air value through profit or loss are presented in other comprehensive income unless such f treatment would create or enlarge an accounting mismatch in profit or loss, in which case all gains or losses on that liability is presented in profit or loss.
28
This page has been left blank intentionally.
29
Reference
IAS 1.112(a)

2. Basis of preparation (continued) (e) Changes in accounting policies (continued) (i) Financial assets and liabilities (early adoption of IFRS 9) (continued) Changes in accounting policies resulting from the adoption of IFRS 9 have been applied on a retrospective basis except as described below from 1 April 2010 without restatement of prior periods.
IFRS 9.7 .2.1, IAS 8.28
IFRS 9.7 .2.1

IAS 8.28(f)
Changes resulting from assessments made on the basis of facts and circumstances that existed at the date of initial application (31 December 2010). The changes are measured as at the first date of the current reporting period (1 April 2010). The assessment of whether a financial asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows. The designation of certain investments in equity instruments that are not held for trading as at fair value through other comprehensive income. The determination of whether the existing designations of liabilities as at fair value through profit or loss would create or enlarge an accounting mismatch in profit or loss. As a result of this analysis no adjustments were required to be made. Change resulting from assessments made at the date of initial application (31 December 2010) and measured at the date of initial application - investments in unquoted equity instruments, which were previously accounted for at cost in accordance with IAS 39, are now measured at fair value. ifferences between the carrying amounts of financial assets and financial liabilities D resulting from the adoption of IFRS 9 are recognised in opening retained earnings for the year ended 31 March 2011, i.e. as at 1 April 2010. he provisions of IFRS 9 have not been applied to financial assets and financial liabilities T derecognised before 31 December 2010. he change in accounting policy had a negative impact of 0.09 on basic and diluted T earnings per share for the period. For more information and details on the new classification see notes 3, 5, 7-13 and 19-23.
30
Note Reference Explanatory note 1. An entity also may consider a de facto control model for the basis of consolidating a subsidiary, in which the ability in practice to control another entity exists and no other party has the power to govern. In our view, whether an entity includes or excludes de facto control aspects in its analysis of control is an accounting policy choice that should be disclosed in its significant accounting policies. This issue is discussed in our publication Insights into IFRS (2.5.30.40).
31
Reference
IAS 1.112(a)

2. Basis of preparation (continued) (e) Changes in accounting policies (continued) (ii) Accounting for business combinations From 1 April 2010 the Group will apply IFRS 3 Business Combinations (2008) in accounting for business combinations. Business Combinations that occurred before 1 April 2010 had not been restated and the accounting policies applicable to those acquisitions are set out below. The new accounting policy in respect of business combinations is as follows.
IAS 8.28(f)
cquisitions on or after 1 April 2010 A Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred to the Group. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, the Group takes into consideration potential voting rights that currently are exercisable.1 The Group measures goodwill at the acquisition date as the total of: the fair value of the consideration transferred; plus the recognised amount of any non-controlling interest in the acquiree; plus if the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree; less the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed. hen this total is negative, a bargain purchase gain is recognised immediately in profit or loss. W
The Group elects on a transaction-by-transaction basis whether to measure non-controlling interest at its fair value, or at its proportionate share of the recognised amount of the identifiable net assets, at the acquisition date. The consideration transferred does not include amounts related to the settlement of preexisting relationships. Such amounts are generally recognised in profit or loss. Costs related to the acquisition, other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a business combination are expensed as incurred.
32
33
Reference
IAS 1.112(a)

2. Basis of preparation (continued) (e) Changes in accounting policies (continued) (ii) Accounting for business combinations (continued) ny contingent consideration payable is recognised at fair value at the acquisition date. If A the contingent consideration is classified as equity, it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes to the fair value of the contingent consideration are recognised in profit or loss. When share-based payment awards (replacement awards) are required to be exchanged for awards held by the acquirees employees (acquirees awards) and relate to past services, then all or a portion of the amount of the acquirers replacement awards is included in measuring the consideration transferred in the business combination. This determination is based on the marketbased value of the replacement awards compared with the market-based value of the acquirees awards and the extent to which the replacement awards relate to past and/or future service.
IFRS 3.58
Acquisitions between 1 April 2004 and 1 April 2010 For acquisitions between 1 April 2004 and 1 April 2010, goodwill represents the excess of the cost of the acquisition over the Groups interest in the recognised amount (generally fair value) of the identifiable assets, liabilities and contingent liabilities of the acquiree. When the excess was negative, a bargain purchase gain was recognised immediately in profit or loss. Transaction costs, other than those associated with the issue of debt or equity securities, that the Group incurred in connection with business combinations were capitalised as part of the cost of the acquisitions. cquisitions prior to 1 April 2004 (date of transition to IFRSs) A As part of its transition to IFRSs, the Group elected to restate only those business combinations that occurred on or after 1 April 2004. In respect of acquisitions prior to 1 April 2004, goodwill represents the amount recognised under the Groups previous accounting framework, [country GAAP].
IAS 8.28(f)
(iii) Accounting for acquisitions of non-controlling interests rom 1 April 2010, the Group has applied IAS 27 Consolidated and Separate Financial F Statements (2008) in accounting for acquisitions of non-controlling interests. The change in accounting policy has been applied prospectively and has had no impact on earnings per share.
Under the new accounting policy acquisitions of non-controlling interests are accounted for as transactions with equity holders in their capacity as owners and therefore no goodwill is recognised as a result of such transactions. The adjustments to non-controlling interests are based on the proportionate amount of the net assets of the subsidiary. Previously, goodwill was recognised on the acquisition of a non-controlling interest in a subsidiary, which represented the excess of the cost of the additional investment over the carrying amount of the interest in the net assets acquired at the date of the transaction.
34

IAS 1.117(b)
The accounting policies describe each specific accounting policy that is relevant to an understanding of the financial statements. Accounting policies are the specific principles, bases, conventions, rules and practices that an entity applies in preparing and presenting financial statements. The accounting policies disclosed in these illustrative financial statements reflect the facts and circumstances of the fictitious banking group on which these financial statements are based. They should not be relied upon for a complete understanding of IFRS requirements and should not be used as a substitute for referring to the standards and interpretations themselves. The accounting policy disclosures appropriate for an entity depend on the facts and circumstances of that entity, including the accounting policy choices an entity makes, and may differ from the disclosures illustrated in these illustrative financial statements. The recognition and measurement requirements of IFRSs are discussed in our publication Insights into IFRS.
IAS 8.5
2.
3.
IAS 27 .41(c)
If the financial statements of a subsidiary used to prepare consolidated financial statements are as of a date or for a period that is different from that of the parent, then an entity discloses that fact and the reason for it.
35
Reference
IAS 1.112(a), 117(a), (b)

3. Significant accounting policies1, 2 The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements, and have been applied consistently by Group entities, except as explained in note 2(e), which addresses changes in accounting policies. (a) Basis of consolidation (i) Business combinations The Group has changed its accounting policy with respect to accounting for business combinations. See note 2(e)(ii) for further details. (ii) Subsidiaries3 Subsidiaries are entities controlled by the Group. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. The accounting policies of subsidiaries have been changed when necessary to align them with the policies adopted by the Group. Losses applicable to the non-controlling interests in a subsidiary are allocated to the non-controlling interests even if doing so causes the non-controlling interests to have a deficit balance. (iii) Special purpose entities Special purpose entities (SPEs) are entities that are created to accomplish a narrow and well-defined objective such as the securitisation of particular assets, or the execution of a specific borrowing or lending transaction. An SPE is consolidated if, based on an evaluation of the substance of its relationship with the Group and the SPEs risks and rewards, the Group concludes that it controls the SPE. The following circumstances may indicate a relationship in which, in substance, the Group controls and consequently consolidates an SPE.
IAS 27 .24
IAS 27 .28
SIC-12.10
The activities of the SPE are being conducted on behalf of the Group according to its specific business needs so that the Group obtains benefits from the SPEs operation. The Group has the decision-making powers to obtain the majority of the benefits of the activities of the SPE or, by setting up an autopilot mechanism, the Group has delegated these decision-making powers. The Group has rights to obtain the majority of the benefits of the SPE and therefore may be exposed to risks incident to the activities of the SPE. The Group retains the majority of the residual or ownership risks related to the SPE or its assets in order to obtain benefits from its activities.
The assessment of whether the Group has control over an SPE is carried out at inception and normally no further reassessment of control is carried out in the absence of changes in the structure or terms of the SPE, or additional transactions between the Group and the SPE. Day-to-day changes in market conditions normally do not lead to a reassessment of control. However, sometimes changes in market conditions may alter the substance of the relationship between the Group and the SPE and in such instances the Group determines whether the change warrants a reassessment of control based on the specific facts and circumstances. Where the Groups voluntary actions, such as lending amounts in excess of existing liquidity facilities or extending terms beyond those established originally, change the relationship between the Group and an SPE, the Group performs a reassessment of control over the SPE. Information about the Groups securitisation activities is set out in note 36.
36
Note Reference Explanatory note 1. The accounting for common control transactions in the absence of specific guidance in IFRSs is discussed in our publication Insights into IFRS (5.13). This publication illustrates one possible method to account for common control transactions.
37
Reference

3. Significant accounting policies (continued) (a) Basis of consolidation (continued) (iv) Acquisitions from entities under common control1 Business combinations arising from transfers of interests in entities that are under the control of the shareholder that controls the Group are accounted for as if the acquisition had occurred at the beginning of the earliest comparative year presented or, if later, at the date that common control was established; for this purpose comparatives are restated. The assets and liabilities acquired are recognised at the carrying amounts recognised previously in the Group controlling shareholders consolidated financial statements. The components of equity of the acquired entities are added to the same components within Group equity and any gain/loss arising is recognised directly in equity. (v) Loss of control Upon the loss of control, the Group derecognises the assets and liabilities of the subsidiary, any non-controlling interests and the other components of equity related to the subsidiary. Any surplus or deficit arising on the loss of control is recognised in profit or loss. If the Group retains any interest in the previous subsidiary, then such interest is measured at fair value at the date that control is lost. Subsequently it is accounted for as an equity-accounted investee or in accordance with the Groups accounting policy for financial instruments (see accounting policy 3(j)(ii))depending on the level of influence retained. (vi) Transactions eliminated on consolidation Intra-group balances, and income and expenses (except for foreign currency transaction gains or losses) arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. (vii) Funds management The Group manages and administers assets held in unit trusts and other investment vehicles on behalf of investors. The financial statements of these entities are not included in these consolidated financial statements except when the Group controls the entity. Information about the Groups funds management is set out in note 6.
IAS 27 .38B
IAS 27 .34
IAS 27 .21
(b) Foreign currency (i) Foreign currency transactions IAS 21.21, 23(a) Transactions in foreign currencies are translated into the respective functional currencies of the operations at the spot exchange rates at the dates of the transactions.
IAS 21.23
Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated into the functional currency at the spot exchange rate at that date. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated into the functional currency at the spot exchange rate at the date that the fair value was determined. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Foreign currency differences arising on translation are recognised in profit or loss, except for differences arising on translation of equity investments in respect of which an election has been made to present subsequent changes in fair value in other comprehensive income or a financial liability designated as the hedging instrument in a hedge of the net investment in a foreign operation or in a cash flow hedge, which are recognised in other comprehensive income (see (iii) below). In addition, prior to 1 April 2010, differences arising on the translation of available-for-sale equity instruments were recognised in other comprehensive income.
38

2.
he following decision tree outlines the principles that apply to reclassification of the foreign T currency translation reserve on partial disposal of a foreign operation. This issue is discussed in our publication Insights into IFRS (2.7.320).
IFRSs allow significant scope for an entity to select its presentation of items of income and expense relating to financial assets and liabilities as either interest or other line items. The manner of presentation of components of interest income and expense in these illustrative financial statements is not mandatory other presentations are possible.
39
Reference

3. Significant accounting policies (continued) (b) Foreign currency (continued) (ii) Foreign operations The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated into euro at spot exchange rates at the reporting date. The income and expenses of foreign operations, are translated into euro at spot exchange rates at the dates of the transactions.
IAS 21.39
IAS 21.48
oreign currency differences are recognised in other comprehensive income, and presented in F the foreign currency translation reserve (translation reserve) in equity. However, if the operation is a non-wholly-owned subsidiary, then the relevant proportionate share of the translation difference is allocated to the non-controlling interest. When a foreign operation is disposed of such that control, significant influence or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. When the Group disposes of only part of its interest in a subsidiary that includes a foreign operation while retaining control, the relevant proportion of the cumulative amount is reattributed to non-controlling interests. When the Group disposes of only part of its investment in an associate or joint venture that includes a foreign operation while retaining significant influence or joint control, the relevant proportion of the cumulative amount is reclassified to profit or loss.1
When the settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely in the foreseeable future, foreign exchange gains and losses arising from such a monetary item are considered to form part of the net investment in the foreign operation and are recognised in other comprehensive income, and presented in the translation reserve in equity. (iii) Hedges of net investments in foreign operations See accounting policy 3(m)(iii).
IAS 21.15
IFRS 7 .21, B5(e), IAS 18.35(a)
(c) Interest Interest income and expense are recognised in profit or loss using the effective interest method. The effective interest rate is the rate that exactly discounts the estimated future cash payments and receipts through the expected life of the financial asset or liability (or, where appropriate, a shorter period) to the carrying amount of the financial asset or liability. When calculating the effective interest rate, the Group estimates future cash flows considering all contractual terms of the financial instrument, but not future credit losses. The calculation of the effective interest rate includes all transaction costs and fees and points paid or received that are an integral part of the effective interest rate. Transaction costs include incremental costs that are directly attributable to the acquisition or issue of a financial asset or liability. Interest income and expense presented in the statement of comprehensive income include:2
interest on financial assets and financial liabilities measured at amortised cost calculated on an effective interest basis; the effective portion of fair value changes in qualifying hedging derivatives designated in cash flow hedges of variability in interest cash flows, in the same period that the hedged cash flows affect interest income/expense; the ineffective portion of fair value changes in qualifying hedging derivatives designated in cash flow hedges of interest rate risk; and fair value changes in qualifying derivatives, including hedge ineffectiveness, and related hedged items in fair value hedges of interest rate risk.
40
Note Reference Explanatory note 1. In these illustrative financial statements net trading income:
includes the entire profit or loss impact (gain and losses) for trading assets and liabilities (including derivatives that are held for trading); and does not include the profit or loss impact of derivatives that are held for risk management purposes.
2.
In these illustrative financial statements net income from other financial instruments at fair value through profit or loss includes:
the entire profit or loss impact of financial assets mandatorily measured at fair value through profit or loss other than those held for trading; the entire profit or loss impact of financial assets and financial liabilities designated as such upon initial recognition; and the realised and unrealised gains and losses on derivatives held for risk management purposes, but not forming part of a qualifying hedging relationship.
However, other presentations are possible.
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Reference

3. Significant accounting policies (continued) (c) Interest (continued) Interest income and expense on all trading assets and liabilities are considered to be incidental to the Groups trading operations and are presented together with all other changes in the fair value of trading assets and liabilities in net trading income. Fair value changes on other derivatives held for risk management purposes, and all other financial assets and liabilities carried at fair value through profit or loss, are presented in net income from other financial instruments at fair value through profit or loss in the statement of comprehensive income. Prior to 1 April 2010 interest income on available-for-sale investment securities calculated on an effective interest basis was also included in interest income.
IFRS 7 .21, B5(e), IAS 18.35(a)
IFRS 7 .21, IAS 18.35(a)
(d) Fees and commission Fees and commission income and expense that are integral to the effective interest rate on a financial asset or liability are included in the measurement of the effective interest rate. Other fees and commission income, including account servicing fees, investment management fees, sales commission, placement fees and syndication fees, are recognised as the related services are performed. When a loan commitment is not expected to result in the draw-down of a loan, the related loan commitment fees are recognised on a straight-line basis over the commitment period. Other fees and commission expense relate mainly to transaction and service fees, which are expensed as the services are received.
IFRS 7 .21, B5(e)
(e) Net trading income1 Net trading income comprises gains less losses related to trading assets and liabilities, and includes all realised and unrealised fair value changes, interest, dividends and foreign exchange differences. (f) Net income from other financial instruments at fair value through profit or loss2 Net income from other financial instruments at fair value through profit or loss relates to non-trading derivatives held for risk management purposes that do not form part of qualifying hedge relationships, financial assets mandatorily measured at fair value through profit or loss other than those held for trading, and financial assets and liabilities designated at fair value through profit or loss. It includes all realised and unrealised fair value changes, interest, dividends and foreign exchange differences. (g) Dividends Dividend income is recognised when the right to receive income is established. Usually this is the ex-dividend date for equity securities. Dividends are presented in net trading income or net income from other financial instruments at fair value through profit or loss based on the underlying classification of the equity investment. Dividends on equity instruments designated as at fair value through other comprehensive income are presented in other revenue in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment, in which case it is presented in other comprehensive income. Prior to 1 April 2010 dividends on available-for-sale equity securities were also presented in other revenue.
IFRS 7 .21, B5(e)
IFRS 7 .21
42
Note Reference Explanatory note 1. IFRSs do not contain specific guidance on how to account for rent that was considered contingent at inception of the lease but is confirmed subsequently. The treatment of contingent rent is discussed in our publication Insights into IFRS (5.1.390.30).
43
Reference

3. Significant accounting policies (continued) (h) Lease payments Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease. Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Contingent lease payments1 are accounted for by revising the minimum lease payments over the remaining term of the lease when the lease adjustment is confirmed. (i) Tax expense Tax expense comprises current and deferred tax. Current tax and deferred tax are recognised in profit or loss except to the extent that it relates to items recognised directly in equity or in other comprehensive income. Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Current tax payable also includes any tax liability arising from the declaration of dividends. Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for:
IAS 17 .33, SIC-15.3
IAS 17 .25
IAS 12.58
IAS 12.46
IAS 12.22(c), 39
temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss; temporary differences related to investments in subsidiaries to the extent that it is probable that they will not reverse in the foreseeable future; and temporary differences arising on the initial recognition of goodwill.
Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.
IAS 12.71, 74
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities against current tax assets, and they relate to taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously. Additional taxes that arise from the distribution of dividends by the Bank are recognised at the same time as the liability to pay the related dividend is recognised. A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
44
Note Reference Explanatory note
he assessment of the objective of an entitys business model for managing financial T assets is not based on managements intentions with respect to an individual instrument but B4.1.1, ather is determined at a higher level of aggregation. This assessment of the business model r B4.1.2 bjective should reflect the way an entity manages its business (or businesses). A reporting o entity may have more than one business model for managing financial assets. This issue is discussed in our publication Insights into IFRS (3.6A.50). 2. IFRS 9.4.1.1 n our view, in making this assessment, an entity should consider the stated objective of I IFRS 9 to provide relevant and useful information to users of the financial statements for their assessment of the amounts, timing and uncertainty of the entitys future cash flows. The more that a business model envisages holding financial assets for an extended period or until maturity in order to collect contractual cash flows, the more relevant and useful amortised cost information is. Conversely, the more that a business model envisages asset sales significantly prior to maturity, the less relevant and useful amortised cost information becomes and the more relevant and useful is fair value information. We believe that the following are among the factors that an entity may consider in making such an assessment for a portfolio of assets: managements stated policies and objectives for the portfolio and the operation of those policies in practice; how management evaluates the performance of the portfolio; whether managements strategy focuses on earning contractual interest revenues; the degree of frequency of expected asset sales; the reasons for asset sales; and whether assets that are sold are held for an extended period of time relative to their contractual maturity or are sold shortly after acquisition or an extended time before maturity. his issue is discussed in our publication Insights into IFRS (3.6A.50.50). T 3. IFRS 9.4.1.5 Financial assets may be designated upon initial recognition at fair value through profit or loss if they eliminate or significantly reduce a measurement or recognition inconsistency (accounting mismatch) that would otherwise arise from measuring assets and liabilities or recognising the gains or losses on them on different bases. hese illustrative financial statements demonstrate this fair value option through investment T securities where the Group holds related derivative positions that are not designated in a hedging relationship, and where designation of the investment securities at fair value through profit or loss eliminates or significantly reduces an accounting mismatch (see note 23).
1.
IFRS 9. 4.1.1(a),
45
Reference

3. Significant accounting policies (continued) (j) Financial assets and financial liabilities (i) Recognition and initial measurement The Group initially recognises loans and advances, deposits, debt securities issued and subordinated liabilities on the date at which they are originated. All other financial assets and liabilities (including assets and liabilities designated at fair value through profit or loss) are initially recognised on the trade date at which the Group becomes a party to the contractual provisions of the instrument. A financial asset or financial liability is measured initially at fair value plus, for an item not at fair value through profit or loss, transaction costs that are directly attributable to its acquisition or issue. (ii) Classification Financial assets Policy applicable from 1 April 2010 t inception a financial asset is classified as measured at amortised cost or fair value. A
IFRS 7 .21 IFRS 7 .B5(c)
IFRS 9.4.1.2
IFRS 9.B4.1.1, B4.1.2
IFRS 7 .21, B5(aa)
A financial asset qualifies for amortised cost measurement only if it meets both of the following conditions: the asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows; and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. f a financial asset does not meet both of these conditions, then it is measured at fair value. I The Group makes an assessment of a business model at a portfolio level as this reflects best the way the business is managed and information is provided to management. In making an assessment1, 2 of whether an asset is held within a business model whose bjective is to hold assets in order to collect contractual cash flows, the Group considers: o managements stated policies and objectives for the portfolio and the operation of those policies in practice; how management evaluates the performance of the portfolio; whether managements strategy focus on earning contractual interest revenues; the degree of frequency of any expected asset sales; the reason for any asset sales; and whether assets that are sold are held for an extended period of time relative to their contractual maturity or are sold shortly after acquisition or an extended time before maturity. Financial assets held for trading are not held within a business model whose objective is to hold the asset in order to collect contractual cash flows. The Group has designated certain financial assets at fair value through profit or loss3 because the designation eliminates or significantly reduces an accounting mismatch, which would otherwise arise. Note 7 sets out the amount of each class of financial asset that has been designated at fair value through profit or loss. A description of the basis for each designation is set out in the note for the relevant asset class. Note 7 also sets out reconciliation between financial asset classes and measurement categories.
46

IAS 39.9,11A
Under IAS 39 financial assets (other than those classified as held for trading) may be designated upon initial recognition at fair value through profit or loss, in any of the following circumstances, if they:
eliminate or significantly reduce a measurement or recognition inconsistency (accounting mismatch) that would otherwise arise from measuring assets or recognising the gains or losses on them on different bases; are part of a group of financial assets that is managed and for which performance is evaluated and reported to key management on a fair value basis in accordance with a documented risk management or investment strategy; and are hybrid contracts where an entity is permitted to designate the entire contract at fair value through profit or loss.
These illustrative financial statements demonstrate this fair value option through:
investment securities where the Group holds related derivative positions that are not designated in a hedging relationship, and where designation of the investment securities at fair value through profit or loss eliminates or significantly reduces an accounting mismatch (see note 23); and assets of the investment banking segment that are managed and evaluated on a fair value basis as part of the Groups documented risk management and investment strategy (see note 22).
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Reference

3. Significant accounting policies (continued) (j) Financial assets and financial liabilities (continued) (ii) Classification (continued) Financial assets Policy applicable from 1 April 2010 (continued) he Group has made an election to present in other comprehensive income changes in the T fair value of certain investments in equity instruments that are not held for trading see accounting policy 3(o).
IFRS 7 .21
IFRS 9.4.4.1
inancial assets are not reclassified subsequent to their initial recognition, except when the F Group changes its business model for managing financial assets.
Financial assets Policy applicable prior to 1 April 2010 At inception a financial asset was classified in one of the following categories:

loans and receivables; held to maturity; available-for-sale; or at fair value through profit or loss and within the category as: held for trading; or designated at fair value through profit or loss.
See accounting policies 3(k), (l), (n) and (o).

IFRS 7 .21, B5(aa)
The Group designated financial assets at fair value through profit or loss1 in the following circumstances:

the assets were managed, evaluated and reported internally on a fair value basis; the designation eliminated or significantly reduced an accounting mismatch, which would otherwise have arisen; or the asset contained an embedded derivative that significantly modified the cash flows that would otherwise have been required under the contract.
Note 7 sets out the amount of each class of financial asset that has been designated at fair value through profit or loss. A description of the basis for each designation is set out in the note for the relevant asset class.
IAS 39.50, 50B, 50D
Trading assets were not reclassified subsequent to their initial recognition, except that nonderivative trading assets, other than those designated at fair value through profit or loss upon initial recognition, may have been reclassified out of the fair value through profit or loss, i.e. trading category, if they were no longer held for the purpose of being sold or repurchased in the near term and either of the conditions below were met.
If the financial asset would have met the definition of loans and receivables (if the financial asset had not been required to be classified as held for trading at initial recognition), then it may be reclassified if the Group has the intention and ability to hold the financial asset for the foreseeable future or until maturity. If the financial asset would not have met the definition of loans and receivables, then it may be reclassified out of the trading category only in rare circumstances.
IAS 39.50E
A financial asset that was classified as available-for-sale that would have met the definition of loans and receivables if it had not been designated as available-for-sale, may be reclassified out of the available-for-sale category to the loans and receivables category if the entity has the intention and ability to hold the financial asset for the foreseeable future or until maturity. Note 7 also sets out reconciliation between financial asset classes and measurement categories.
48

IAS 39.9, 11A
nder IAS 39 and IFRS 9 financial liabilities (other than those classified as held for trading) U
may be designated upon initial recognition at fair value through profit or loss, in any of the following circumstances, if they:
eliminate or significantly reduce a measurement or recognition inconsistency (accounting mismatch) that would otherwise arise from measuring liabilities or recognising the gains or losses on them on different bases; are part of a group of financial liabilities that is managed and for which performance is evaluated and reported to key management on a fair value basis in accordance with a documented risk management or investment strategy; and are hybrid contracts where an entity is permitted to designate the entire contract at fair value through profit or loss.
These illustrative financial statements demonstrate this fair value option through fixed rate structured notes that include an embedded derivative and where the Group has elected to designate the entire contract at fair value see note 30.
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Reference

3. Significant accounting policies (continued) (j) Financial assets and financial liabilities (continued) (ii) Classification (continued) Financial liabilities The Group classifies its financial liabilities as measured at amortised cost or fair value through profit or loss. See accounting policies 3(l), (u). The Group has designated financial liabilities at fair value through profit or loss1 when liabilities contain embedded derivatives that significantly modify the cash flows that would otherwise be required under the contract. Note 7 sets out the amount of each class of financial liabilities that has been designated at fair value through profit or loss. A description of the basis for each designation is set out in the note for the relevant liability class. Financial guarantees and commitments to provide a loan at a below-market interest rate are subsequently measured at the higher of the amount determined in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets and the amount initially recognised less, when appropriate, cumulative amortisation recognised in accordance with IAS 18 Revenue. See accounting policy 3(w). Note 7 also sets out reconciliation between financial liability classes and measurement categories. (iii) Derecognition The Group derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire, or when it transfers the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred or in which the Group neither transfers nor retains substantially all the risks and rewards of ownership and it does not retain control of the financial asset. Any interest in transferred financial assets that qualify for derecognition that is created or retained by the Group is recognised as a separate asset or liability in the statement of financial position. On derecognition of a financial asset, the difference between the carrying amount of the asset (or the carrying amount allocated to the portion of the asset transferred), and consideration received (including any new asset obtained less any new liability assumed) is recognised in profit or loss. In addition, prior to 1 April 2010 any cumulative gain or loss that had been recognised in other comprehensive income was also recognised in profit or loss. The Group enters into transactions whereby it transfers assets recognised on its statement of financial position, but retains either all or substantially all of the risks and rewards of the transferred assets or a portion of them. If all or substantially all risks and rewards are retained, then the transferred assets are not derecognised. Transfers of assets with retention of all or substantially all risks and rewards include, for example, securities lending and repurchase transactions. When assets are sold to a third party with a concurrent total rate of return swap on the transferred assets, the transaction is accounted for as a secured financing transaction similar to repurchase transactions as the Group retains all or substantially all the risks and rewards of ownership of such assets.
IFRS 7 .21
IFRS 7 .21, B5(a)
IAS 39.4 (c), 47(c), (d) IFRS 9.4.2.1(c), (d)
50
51
Reference

3. Significant accounting policies (continued) (j) Financial assets and financial liabilities (continued) (iii) Derecognition (continued) In transactions in which the Group neither retains nor transfers substantially all the risks and rewards of ownership of a financial asset and it retains control over the asset, the Group continues to recognise the asset to the extent of its continuing involvement, determined by the extent to which it is exposed to changes in the value of the transferred asset. In certain transactions the Group retains the obligation to service the transferred financial asset for a fee. The transferred asset is derecognised if it meets the derecognition criteria. An asset or liability is recognised for the servicing contract, depending on whether the servicing fee is more than adequate (asset) or is less than adequate (liability) for performing the servicing. The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expire. The Group securitises various consumer and commercial financial assets, which generally results in the sale of these assets to special-purpose entities, which in turn issue securities to investors. Interests in the securitised financial assets may be retained in the form of senior or subordinated tranches, interest-only strips or other residual interests (retained interests). Retained interests are primarily recognised as investment securities and carried at amortised cost or fair value. Gains or losses on securitisation depend in part on the carrying amount of the transferred financial assets, allocated between the financial assets derecognised and the retained interests based on their relative fair values at the date of the transfer. Gains or losses on securitisation are recognised in other revenue.
IFRS 7 .21
Retained interests are measured at amortised cost or fair value with fair value changes recognised profit or loss. Prior to 1 April 2010, retained interests were primarily recognised in
available-for-sale-investment securities and measured at fair value. (iv) Offsetting Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to set off the recognised amounts and it intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. Income and expenses are presented on a net basis only when permitted under IFRSs, or for gains and losses arising from a group of similar transactions such as in the Groups trading activity. (v) Amortised cost measurement The amortised cost of a financial asset or liability is the amount at which the financial asset or liability is measured at initial recognition, minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between the initial amount recognised and the maturity amount, minus any reduction for impairment.
52
53
Reference

3. Significant accounting policies (continued) (j) Financial assets and financial liabilities (continued) (vi) Fair value measurement Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arms length transaction on the measurement date.
IFRS 7 .27
When available, the Group measures the fair value of an instrument using quoted prices in an active market for that instrument. A market is regarded as active if quoted prices are readily and regularly available and represent actual and regularly occurring market transactions on an arms length basis. If a market for a financial instrument is not active, then the Group establishes fair value using a valuation technique. Valuation techniques include using recent arms length transactions between knowledgeable, willing parties (if available), reference to the current fair value of other instruments that are substantially the same, discounted cash flow analyses and option pricing models. The chosen valuation technique makes maximum use of market inputs, relies as little as possible on estimates specific to the Group, incorporates all factors that market participants would consider in setting a price, and is consistent with accepted economic methodologies for pricing financial instruments. Inputs to valuation techniques reasonably represent market expectations and measures of the risk-return factors inherent in the financial instrument. The Group calibrates valuation techniques and tests them for validity using prices from observable current market transactions in the same instrument or based on other available observable market data.
IFRS 7 .28(a)
The best evidence of the fair value of a financial instrument at initial recognition is the transaction price, i.e. the fair value of the consideration given or received, unless the fair value of that instrument is evidenced by comparison with other observable current market transactions in the same instrument, i.e. without modification or repackaging, or based on a valuation technique whose variables include only data from observable markets. When transaction price provides the best evidence of fair value at initial recognition, the financial instrument is initially measured at the transaction price and any difference between this price and the value initially obtained from a valuation model is subsequently recognised in profit or loss on an appropriate basis over the life of the instrument but not later than when the valuation is supported wholly by observable market data or the transaction is closed out. Any difference between the fair value at initial recognition and the amount that would be determined at that date using a valuation technique in a situation in which the valuation is dependent on unobservable parameters is not recognised in profit or loss immediately but is recognised over the life of the instrument on an appropriate basis or when the instrument is redeemed, transferred or sold, or the fair value becomes observable. Assets and long positions are measured at a bid price; liabilities and short positions are measured at an asking price. Where the Group has positions with offsetting risks, mid-market prices are used to measure the offsetting risk positions and a bid or asking price adjustment is applied only to the net open position as appropriate. Fair values reflect the credit risk of the instrument and include adjustments to take account of the credit risk of the Group entity and the counterparty where appropriate. Fair value estimates obtained from models are adjusted for any other factors, such as liquidity risk or model uncertainties, to the extent that the Group believes a third-party market participant would take them into account in pricing a transaction.
54
55
Reference

3. Significant accounting policies (continued) (j) Financial assets and financial liabilities (continued) (vii) Identification and measurement of impairment olicy applicable from 1 April 2010 P At each reporting date the Group assesses whether there is objective evidence that financial assets carried at amortised cost are impaired. A financial asset or a group of financial assets is impaired when objective evidence demonstrates that a loss event has occurred after the initial recognition of the asset(s), and that the loss event has an impact on the future cash flows of the asset(s) that can be estimated reliably.
IFRS 7 .B5(f)
Objective evidence that financial assets are impaired can include significant financial difficulty of the borrower or issuer, default or delinquency by a borrower, restructuring of a loan or advance by the Group on terms that the Group would not otherwise consider, indications that borrower or issuer will enter bankruptcy, the disappearance of an active market for a security, a or other observable data relating to a group of assets such as adverse changes in the payment status of borrowers or issuers in the group, or economic conditions that correlate with defaults in the group. The Group considers evidence of impairment for loans and advances and investment securities measured at amortised costs at both a specific asset and collective level. All individually significant loans and advances and investment securities measured at amortised cost are assessed for specific impairment. All individually significant loans and advances and investment securities measured at amortised cost found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Loans and advances and investment securities measured at amortised cost that are not individually significant are collectively assessed for impairment by grouping together loans and advances and investment securities measured at amortised cost with similar risk characteristics. In assessing collective impairment the Group uses statistical modelling of historical trends of the probability of default, timing of recoveries and the amount of loss incurred, adjusted for managements judgement as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical modelling. Default rates, loss rates and the expected timing of future recoveries are regularly benchmarked against actual outcomes to ensure that they remain appropriate. Impairment losses on assets carried at amortised cost are measured as the difference between the carrying amount of the financial asset and the present value of estimated future cash flows discounted at the assets original effective interest rate. Impairment losses are recognised in profit or loss and reflected in an allowance account against loans and advances. Interest on impaired assets continues to be recognised through the unwinding of the discount. hen a subsequent event causes the amount of impairment loss to decrease, the decrease in W impairment loss is reversed through profit or loss. The Group writes off loans and advances and investment securities when they are determined to be uncollectible (see note 4).
56
57
Reference

3. Significant accounting policies (continued) (j) Financial assets and financial liabilities (continued) (vii) Identification and measurement of impairment (continued) Policy applicable prior to 1 April 2010 At each reporting date the Group assesses whether there is objective evidence that financial assets not carried at fair value through profit or loss are impaired. A financial asset or a group of financial assets is impaired when objective evidence demonstrates that a loss event has occurred after the initial recognition of the asset(s), and that the loss event has an impact on the future cash flows of the asset(s) that can be estimated reliably. Objective evidence that financial assets (including equity securities) are impaired can include significant financial difficulty of the borrower or issuer, default or delinquency by a borrower, restructuring of a loan or advance by the Group on terms that the Group would not otherwise consider, indications that a borrower or issuer will enter bankruptcy, the disappearance of an active market for a security, or other observable data relating to a group of assets such as adverse changes in the payment status of borrowers or issuers in the group, or economic conditions that correlate with defaults in the group. In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment. The Group considers evidence of impairment for loans and advances and held-to-maturity investment securities at both a specific asset and collective level. All individually significant loans and advances and held-to-maturity investment securities are assessed for specific impairment. All individually significant loans and advances and held-to-maturity investment securities found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Loans and advances and held-tomaturity investment securities that are not individually significant are collectively assessed for impairment by grouping together loans and advances and held-to-maturity investment securities with similar risk characteristics. In assessing collective impairment the Group uses statistical modelling of historical trends of the probability of default, timing of recoveries and the amount of loss incurred, adjusted for managements judgement as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical modelling. Default rates, loss rates and the expected timing of future recoveries are regularly benchmarked against actual outcomes to ensure that they remain appropriate. Impairment losses on assets carried at amortised cost are measured as the difference between the carrying amount of the financial asset and the present value of estimated future cash flows discounted at the assets original effective interest rate. Impairment losses are recognised in profit or loss and reflected in an allowance account against loans and advances. Interest on impaired assets continues to be recognised through the unwinding of the discount. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss. Impairment losses on available-for-sale investment securities are recognised by transferring the cumulative loss that has been recognised in other comprehensive income to profit or loss as a reclassification adjustment. The cumulative loss that is reclassified from other comprehensive income to profit or loss is the difference between the acquisition cost, net of any principal repayment and amortisation, and the current fair value, less any impairment loss previously recognised in profit or loss. Changes in impairment provisions attributable to time value are reflected as a component of interest income.
IFRS 7 .B5(f)
58
Note Reference Explanatory note 1. In these illustrative financial statements the classes of financial instruments reflect the Groups activities. Accordingly, derivatives are presented either as trading assets or liabilities or as derivative assets or liabilities held for risk management purposes to reflect the Groups two uses of derivatives. Derivatives held for risk management purposes include qualifying hedge instruments and non-qualifying hedge instruments held for risk management purposes rather than for trading. However, other presentations are possible.
59
Reference

3. Significant accounting policies (continued) (j) Financial assets and financial liabilities (continued) (vii) Identification and measurement of impairment (continued) Policy applicable prior to 1 April 2010 (continued) If, in a subsequent period, the fair value of an impaired available-for-sale debt security increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, then the impairment loss is reversed, with the amount of the reversal recognised in profit or loss. However, any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognised in other comprehensive income. The Group writes off certain loans and advances and investment securities when they are determined to be uncollectible (see note 4).
IAS 7 .46
(k) Cash and cash equivalents Cash and cash equivalents include notes and coins on hand, unrestricted balances held with central banks and highly liquid financial assets with maturities of three months or less from the acquisition date that are subject to an insignificant risk of changes in their fair value, and are used by the Group in the management of its short-term commitments. Cash and cash equivalents are carried at amortised cost in the statement of financial position.
IFRS 7 .21
(l)
Trading assets and liabilities Trading assets and liabilities are those assets and liabilities that the Group acquires or incurs principally for the purpose of selling or repurchasing in the near term, or holds as part of a portfolio that is managed together for short-term profit or position taking. Trading assets and liabilities are measured at fair value with changes in fair value recognised as part of net trading income in profit or loss.
IFRS 7 .21
(m) Derivatives held for risk management purposes1 and hedge accounting Derivatives held for risk management purposes include all derivative assets and liabilities that are not classified as trading assets or liabilities. Derivatives held for risk management purposes are measured at fair value in the statement of financial position. The Group designates certain derivatives held for risk management as well as certain non-derivative financial instruments as hedging instruments in qualifying hedging relationships. On initial designation of the hedge, the Group formally documents the relationship between the hedging instrument(s) and hedged item(s), including the risk management objective and strategy in undertaking the hedge, together with the method that will be used to assess the effectiveness of the hedging relationship. The Group makes an assessment, both at the inception of the hedge relationship as well as on an ongoing basis, as to whether the hedging instrument(s) is(are) expected to be highly effective in offsetting the changes in the fair value or cash flows of the respective hedged item(s) during the period for which the hedge is designated, and whether the actual results of each hedge are within a range of 80-125 percent. The Group makes an assessment for a cash flow hedge of a forecast transaction, as to whether the forecast transaction is highly probable to occur and presents an exposure to variations in cash flows that could ultimately affect profit or loss.
60
61
Reference

3. Significant accounting policies (continued) (m) Derivatives held for risk management purposes and hedge accounting (continued) These hedging relationships are discussed below. (i) Fair value hedges When a derivative is designated as the hedging instrument in a hedge of the change in fair value of a recognised asset or liability or a firm commitment that could affect profit or loss, changes in the fair value of the derivative are recognised immediately in profit or loss together with changes in the fair value of the hedged item that are attributable to the hedged risk (in the same line item in the statement of comprehensive income as the hedged item). If the hedging derivative expires or is sold, terminated, or exercised, or the hedge no longer meets the criteria for fair value hedge accounting, or the hedge designation is revoked, then hedge accounting is discontinued prospectively. Any adjustment up to that point to a hedged item for which the effective interest method is used, is amortised to profit or loss as part of the recalculated effective interest rate of the item over its remaining life. (ii) Cash flow hedges When a derivative is designated as the hedging instrument in a hedge of the variability in cash flows attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction that could affect profit or loss, the effective portion of changes in the fair value of the derivative is recognised in other comprehensive income in the hedging reserve. The amount recognised in other comprehensive income is reclassified to profit or loss as a reclassification adjustment in the same period as the hedged cash flows affect profit or loss, and in the same line item in the statement of comprehensive income. Any ineffective portion of changes in the fair value of the derivative is recognised immediately in profit or loss. If the hedging derivative expires or is sold, terminated, or exercised, or the hedge no longer meets the criteria for cash flow hedge accounting, or the hedge designation is revoked, then hedge accounting is discontinued prospectively. In a discontinued hedge of a forecast transaction the cumulative amount recognised in other comprehensive income from the period when the hedge was effective is reclassified from equity to profit or loss as a reclassification adjustment when the forecast transaction occurs and affects profit or loss. If the forecast transaction is no longer expected to occur, then the balance in other comprehensive income is reclassified immediately to profit or loss as a reclassification adjustment. (iii) Net investment hedges When a derivative instrument or a non-derivative financial liability is designated as the hedging instrument in a hedge of a net investment in a foreign operation, the effective portion of changes in the fair value of the hedging instrument is recognised in other comprehensive income in the translation reserve. Any ineffective portion of the changes in the fair value of the derivative is recognised immediately in profit or loss. The amount recognised in other comprehensive is reclassified to profit or loss as a reclassification adjustment on disposal of the foreign operation.
IFRS 7 .21
62
FRS 9 and IAS 39 do not specify where a separated embedded derivative component is I
presented in the statement of financial position. In these illustrative financial statements, an embedded derivative component that is separated from the host contract is presented in the same line item in the statement of financial position as the related host contract. Net income on separated embedded derivative components is reflected in either net income from other financial instruments at fair value through profit or loss or in net interest income, depending on whether the derivative is designated in a qualifying hedging relationship. However, other presentations are possible.
63
Reference

3. Significant accounting policies (continued) (m) Derivatives held for risk management purposes and hedge accounting (continued) (iv) Other non-trading derivatives When a derivative is not held for trading, and is not designated in a qualifying hedge relationship, all changes in its fair value are recognised immediately in profit or loss as a component of net income from other financial instruments at fair value through profit or loss.
IFRS 7 .21
(v) Embedded derivatives olicy applicable from 1 April 2010 1 P IFRS 9.4.3.2, 4.3.3 erivatives may be embedded in another contractual arrangement (a host contract). The D Group accounts for an embedded derivative separately from the host contract when the host contract is not an asset within the scope of IFRS 9 and is not itself carried at fair value through profit or loss, the terms of the embedded derivative would meet the definition of a derivative if they were contained in a separate contract, and the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics and risks of the host contract. Separated embedded derivatives are accounted for depending on their classification, and are presented in the statement of financial position together with the host contract. Policy applicable prior to 1 April 2010 1 Derivatives may be embedded in another contractual arrangement (a host contract). The Group accounts for an embedded derivative separately from the host contract when the host contract is not itself carried at fair value through profit or loss, the terms of the embedded derivative would meet the definition of a derivative if they were contained in a separate contract, and the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics and risks of the host contract. Separated embedded derivatives are accounted for depending on their classification, and are presented in the statement of financial position together with the host contract. (n) Loans and advances Policy applicable from 1 April 2010 Loans and advances are non-derivative financial assets with fixed or determinable payments, other than investment securities, that are not held for trading. When the Group is the lessor in a lease agreement that transfers substantially all of the risks and rewards incidental to ownership of the asset to the lessee, the arrangement is classified as a finance lease and a receivable equal to the net investment in the lease is recognised and presented within loans and advances. When the Group purchases a financial asset and simultaneously enters into an agreement to resell the asset (or a substantially similar asset) at a fixed price on a future date (reverse repo or stock borrowing), the arrangement is accounted for as a loan or advance, and the underlying asset is not recognised in the Groups financial statements. Subsequent to initial recognition loans and advances are measured at amortised cost using the effective interest method, except when the Group recognises the loans and advances at fair value through profit or loss as described in accounting policy 3(j)(ii).
IAS 39.11
IFRS 7 .21
64
65
Reference

3. Significant accounting policies (continued) (n) Loans and advances (continued) Policy applicable prior to 1 April 2010 Loans and advances are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and that the Group does not intend to sell immediately or in the near term. Loans and advances to banks are classified as loans and receivables. Loans and advances to customers include:

IFRS 7 .21
those classified as loans and receivables; those designated as at fair value through profit or loss; and finance lease receivables.
Loans and advances classified as loans and receivables are initially measured at fair value plus incremental direct transaction costs, and subsequently measured at their amortised cost using the effective interest method. When the Group chooses to designate the loans and advances as measured at fair value through profit or loss as described in accounting policy (j)(ii) they are measured at fair value with fair value changes recognised immediately in profit or loss. When the Group is the lessor in a lease agreement that transfers substantially all of the risks and rewards incidental to ownership of the asset to the lessee, the arrangement is classified as a finance lease and a receivable equal to the net investment in the lease is recognised and presented within loans and advances. When the Group purchases a financial asset and simultaneously enters into an agreement to resell the asset (or a substantially similar asset) at a fixed price on a future date (reverse repo or stock borrowing), the arrangement is accounted for as a loan or advance, and the underlying asset is not recognised in the Groups financial statements. (o) Investment securities olicy applicable from 1 April 2010 P ubsequent to initial recognition investment securities are accounted for depending on their S classification as either amortised cost, fair value through profit or loss or fair value through other comprehensive income.
IFRS 7 .21
IFRS 7 .21
IFRS 9.5.7 .5
IFRS 9.B5.7 .1
nvestment securities are measured at amortised cost using the effective interest method, if: I they are held within a business model with an objective to hold assets in order to collect contractual cash flows and the contractual terms of the financial asset give rise, on specified dates, to cash flows that are solely payments of principal and interest; and they have not been designated previously as measured at fair value through profit or loss. The Group elects to present changes in fair value of certain investments in equity instruments held for strategic purposes in other comprehensive income. The election is irrevocable and is made on an instrument-by-instrument basis at initial recognition. Gains and losses on such equity instruments are never reclassified to profit or loss and no impairment is recognised in profit or loss. Dividends are recognised in profit or loss (see note 12) unless they clearly represent a recovery of part of the cost of the investment, in which case they are recognised in other comprehensive income. Cumulative gains and losses recognised in other comprehensive income are transferred to retained earnings on disposal of an investment. Other investment securities are measured at fair value through profit or loss.
66

IAS 39.9
An entity is prohibited from classifying any financial assets as held to maturity if the entity has, during the current or two preceding financial years, sold or reclassified a more than insignificant amount of held-to-maturity investments prior to their maturity, except for sales or reclassifications in any of the following circumstances: sales or reclassifications that are so close to maturity that changes in the market rate of interest would not have a significant effect on the financial assets fair value; sales or reclassifications after the entity has collected substantially all of the assets original principal; and sales or reclassification attributable to non-recurring isolated events beyond the entitys control that could not have been reasonably anticipated.
67
Reference

3. Significant accounting policies (continued) (o) Investment securities (continued) Policy applicable prior to 1 April 2010 Subsequent to initial recognition investment securities are accounted for depending on their classification as either held to maturity, fair value through profit or loss, or available-for-sale. (i) Held-to-maturity financial assets Held-to-maturity investments are non-derivative assets with fixed or determinable payments and fixed maturity that the Group has the positive intent and ability to hold to maturity, and which were not designated as at fair value through profit or loss or as available-for-sale. Held-to-maturity investments were carried at amortised cost using the effective interest method. A sale or reclassification of a more than insignificant amount of held-to-maturity investments would result in the reclassification of all held-to-maturity investments as availablefor-sale, and would prevent the Group from classifying investment securities as held to maturity for the current and the following two financial years.1 However, sales and reclassifications in any of the following circumstances would not trigger a reclassification:
IFRS 7 .21
sales or reclassifications that are so close to maturity that changes in the market rate of interest would not have a significant effect on the financial assets fair value; sales or reclassifications after the Group has collected substantially all of the assets original principal; and sales or reclassifications attributable to non-recurring isolated events beyond the Groups control that could not have been reasonably anticipated.
(ii) Fair value through profit or loss The Group designated some investment securities at fair value, with fair value changes recognised immediately in profit or loss as described in accounting policy (j)(ii). (iii) Available-for-sale financial assets Available-for-sale investments are non-derivative investments that were designated as availablefor-sale or are not classified as another category of financial assets. Unquoted equity securities whose fair value cannot reliably be measured were carried at cost. All other available-for-sale investments were carried at fair value. Interest income was recognised in profit or loss using the effective interest method. Dividend income was recognised in profit or loss when the Group became entitled to the dividend. Foreign exchange gains or losses on available-for-sale debt security investments were recognised in profit or loss. Other fair value changes were recognised in other comprehensive income until the investment was sold or impaired, whereupon the cumulative gains and losses previously recognised in other comprehensive income were reclassified to profit or loss as a reclassification adjustment. A non-derivative financial asset was reclassified from the available-for-sale category to the loans and receivables category if it otherwise would have met the definition of loans and receivables and if the Group had the intention and ability to hold that financial asset for the foreseeable future or until maturity.
68
Note Reference Explanatory note 1. If the determination of the cost of property, plant and equipment at the entitys date of transition to IFRS is relevant to an understanding of the financial statements, then the entity might include in its accounting policies that Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. The cost of property, plant and equipment at 1 April 2004, the entitys date of transition to IFRSs, was determined by reference to its fair value at that date.
69
Reference

3. Significant accounting policies (continued) (p) Property and equipment (i) Recognition and measurement1 Items of property and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the assets to a working condition for their intended use, the costs of dismantling and removing the items and restoring the site on which they are located, and capitalised borrowing costs. Cost also may include transfers from equity of any gain or loss on qualifying cash flow hedges of foreign currency purchases of property and equipment. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. When parts of an item of property or equipment have different useful lives, they are accounted for as separate items (major components) of property and equipment. The gain or loss on disposal of an item of property and equipment is determined by comparing the proceeds from disposal with the carrying amount of the item of property and equipment, and is recognised in other income/other expenses in profit or loss. (ii) Reclassification to investment property When the use of property changes from owner-occupied to investment property, the property is remeasured to fair value and reclassified as investment property. Any gain arising on remeasuerment is recognised in profit or loss to the extent that it reverses a previous impairment loss on the specific property, with any remaining gain recognised in other comprehensive income and presented in revaluation reserve in equity. Any loss is recognised immediately in profit or loss. (iii) Subsequent costs The cost of replacing a component of an item of property or equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of property and equipment are recognised in profit or loss as incurred. (iv) Depreciation Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property and equipment since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. Leased assets under finance leases are depreciated over the shorter of the lease term and their useful lives. Land is not depreciated. The estimated useful lives for the current and comparative years are as follows:

IAS 16.73(a) IAS 16.30
IAS 16.16
IAS 16.45
IAS 16.41, 71
IAS 40.62
IAS 16.13
IAS 16.73(b)
IAS 16.73(c)
buildings IT equipment fixtures and fittings
40 years 3 - 5 years 5 - 10 years
Depreciation methods, useful lives and residual values are reassessed at each reporting date and adjusted if appropriate.
70

IAS 40.75(c)
If classification of property is difficult, then an entity discloses the criteria developed to distinguish investment property from owner-occupied property and from property held for sale in the ordinary course of business. If an entity accounts for investment property using the cost model, then it discloses the depreciation method and the useful lives or the depreciation rates used, as well as the fair value of such investment property.
2.
IAS 40.56, 79(a), (b), (e)
71
Reference

3. Significant accounting policies (continued) (q) Investment property nvestment property is property held either to earn rental income or for capital appreciation or I for both, but not for sale in the ordinary course of business, use in the production or supply of goods or services or for administrative purposes.1 The Group holds some investment property as a consequence of the ongoing rationalisation of its retail branch network. Other property has been acquired through the enforcement of security over loans and advances. Investment property is measured at cost on initial recognition and subsequently at fair value with any change therein recognised in profit or loss as part of other revenue.2
IAS 40.75(a)
IAS 40.60
hen the use of a property changes such that it is reclassified as property and equipment, its W fair value at the date of reclassification becomes its cost for subsequent accounting.
(r) Intangible assets (i) Goodwill Goodwill that arises upon the acquisition of subsidiaries is included in intangible assets. For the measurement of goodwill at initial recognition, see note 2(e)(ii). Subsequent to initial recognition goodwill is measured at cost less accumulated impairment losses. (ii) Software Software acquired by the Group is stated at cost less accumulated amortisation and accumulated impairment losses. Expenditure on internally developed software is recognised as an asset when the Group is able to demonstrate its intention and ability to complete the development and use the software in a manner that will generate future economic benefits, and can reliably measure the costs to complete the development. The capitalised costs of internally developed software include all costs directly attributable to developing the software and capitalised borrowing costs, and are amortised over its useful life. Internally developed software is stated at capitalised cost less accumulated amortisation and impairment. Subsequent expenditure on software assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred. Amortisation is recognised in profit or loss on a straight-line basis over the estimated useful life of the software, from the date that it is available for use since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. The estimated useful life of software is three to five years. Amortisation methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate.
IAS 38.74
IAS 38.57 66 ,
IAS 38.18
IAS 38.118(a), (b)
IAS 38.104
72

SIC-27 .10(b)
When applicable, an entity discloses the accounting treatment applied to any fee received in an arrangement in the legal form of a lease to which lease accounting is not applied because the arrangement does not, in substance, involve a lease. IFRSs do not specify the line item in the statement of comprehensive income in which an impairment loss on non-financial assets is presented. If an entity classifies expenses based on their function, then any such impairment loss is allocated to the appropriate function. In our view, if such an impairment loss cannot be allocated to a function, then it should be included in other expenses, with additional information provided in the notes. This issue is discussed in our publication Insights into IFRS (3.10.430.20). In our view, an impairment loss recognised in published interim financial statements should be presented in the same line item in the annual financial statements. This issue is discussed in our publication Insights into IFRS (3.10.430.30).
2.
73
Reference

3. Significant accounting policies (continued) (s) Leased assets lessee1 Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset.
IAS 40.75(b)
Other leases are operating leases and are not recognised in the Groups statement of financial position. (t) Impairment of non-financial assets The carrying amounts of the Groups non-financial assets, other than investment property and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the assets recoverable amount is estimated. For goodwill and intangible assets that have indefinite useful lives or that are not yet available for use, the recoverable amount is estimated each year at the same time. An impairment loss is recognised if the carrying amount of an asset or its Cash Generating Unit (CGU) exceeds its estimated recoverable amount. The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or CGU. Subject to an operating segment ceiling test, for the purposes of goodwill impairment testing, CGUs to which goodwill has been allocated are aggregated so that the level at which impairment testing is performed reflects the lowest level at which goodwill is monitored for internal reporting purposes. Goodwill acquired in a business combination is allocated to groups of CGUs that are expected to benefit from the synergies of the combination.
IAS 36.9
IAS 36.18, 80
IAS 36.102
The Groups corporate assets do not generate separate cash inflows and are utilised by more than one CGU. Corporate assets are allocated to CGUs on a reasonable and consistent basis and tested for impairment as part of the testing of the CGU to which the corporate asset is allocated. Impairment losses are recognised in profit or loss.2 Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGU (group of CGUs) and then to reduce the carrying amount of the other assets in the CGU (group of CGUs) on a pro rata basis.
IAS 36.104
74
Note Reference Explanatory note 1. The classification of financial instruments as liabilities, equity or a combination of both is dealt with in IAS 32 Financial Instruments: Presentation and depends on the contractual terms of the instruments. The issues associated with the classification of financial instruments are discussed in our publication Insights into IFRS (3.11.10). The disclosures illustrated here are not intended to be a complete description of accounting policies that may be applicable to preference shares.
75
Reference

3. Significant accounting policies (continued) (t) Impairment of non-financial assets (continued) An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the assets carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. (u) Deposits, debt securities issued and subordinated liabilities Deposits, debt securities issued and subordinated liabilities are the Groups sources of debt funding. When the Group sells a financial asset and simultaneously enters into an agreement to repurchase the asset (or a similar asset) at a fixed price on a future date (repo or stock lending), the arrangement is accounted for as a deposit, and the underlying asset continues to be recognised in the Groups financial statements. The Group classifies capital instruments as financial liabilities or equity instruments in accordance with the substance of the contractual terms of the instruments. The Groups redeemable preference shares bear non-discretionary coupons and are redeemable by the holder, and are therefore included within subordinated liabilities.1 Subsequent to initial recognition deposits, debt securities issued and subordinated liabilities are measured at their amortised cost using the effective interest method, except where the Group designates liabilities at fair value through profit or loss.
IAS 36.124
IFRS 7 .21
From 1 April 2010, when the Group designates a financial liability as at fair value through profit or loss, the amount of change in the fair value of such liability that is attributable to its changes in credit risk is presented in other comprehensive income. At inception of a financial liability designated as at fair value though profit or loss, the Group assesses whether presentation of the amount of change in the fair value of the liability that is attributable to credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. The assessment is first made qualitatively, on an instrument-by-instrument basis, as to whether there is an economic relationship between the characteristics of the liability and the characteristics of another financial instrument that would cause such an accounting mismatch. No such mismatch has been identified in respect of the financial liabilities entered into by the Group and therefore no further detailed analysis has been required.
IAS 37 .14
(v) Provisions A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. (i) Restructuring A provision for restructuring is recognised when the Group has approved a detailed and formal restructuring plan, and the restructuring either has commenced or has been announced publicly. Future operating losses are not provided for.
IAS 37 .72(a)
76
Note Reference Explanatory note 1. IFRSs do not provide guidance on the specific types of costs that would be considered unavoidable in respect of onerous contracts. This issue is discussed in our publication Insights into IFRS (3.12.660.30).
IFRS 9.4.2.1(c), IAS 39.2(e)
2.
An entity may account for a financial guarantee contract as an insurance contract under IFRS 4 Insurance Contracts if it has previously asserted explicitly that it regards such contracts as insurance contracts and has used accounting applicable for insurance contracts. For other financial guarantee contracts, an entity accounts for the financial guarantee under IFRS 9/ IAS 39 initially at fair value, and subsequently at the higher of the amount determined under IAS 37 or the amount initially recognised, adjusted for cumulative amortisation in accordance with IAS 18. In these illustrative financial instruments, the Group has accounted for all financial guarantee contracts under IFRS 9/IAS 39 rather than IFRS 4.
77
Reference

3. Significant accounting policies (continued) (v) Provisions (continued) (ii) Onerous contracts A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract are lower than the unavoidable cost1 of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Group recognises any impairment loss on the assets associated with that contract. (w) Financial guarantees2 Financial guarantees are contracts that require the Group to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument. Financial guarantee liabilities are recognised initially at their fair value, and the initial fair value is amortised over the life of the financial guarantee. The financial guarantee liability is subsequently carried at the higher of this amortised amount and the present value of any expected payment when a payment under the guarantee has become probable. Financial guarantees are included within other liabilities. (x) Employee benefits (i) Defined contribution plans A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognised as an employee benefit expense in profit or loss in the periods during which services are rendered by employees. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in future payments is available. Contributions to a defined contribution plan that are due more than 12 months after the end of the reporting period in which the employees render the service are discounted to their present value at the reporting date. (ii) Defined benefit plans A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Groups net obligation in respect of defined benefit pension plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value. Any unrecognised past service costs and the fair value of any plan assets are deducted. The discount rate is the yield at the reporting date on AA credit-rated bonds that have maturity dates approximating the terms of the Groups obligations. The calculation is performed by a qualified actuary using the projected unit credit method. To determine the net amount in the statement of financial position, any actuarial gains and losses that have not been recognised because of application of the corridor approach described below are added or deducted as appropriate and unrecognised past service costs are deducted.
IAS 37 .66
IFRS 7 .21
IAS 19.44
IAS 19.50, 56, 78
IAS 19.120A(a)
The Group recognises a portion of actuarial gains and losses that arise in calculating the Groups obligation in respect of a plan in profit or loss over the expected average remaining working lives of the employees participating in the plan. The portion is determined as the extent to which any cumulative unrecognised actuarial gain or loss at the end of the previous reporting period exceeds 10 percent of the greater of the present value of the defined benefit obligation and the fair value of plan assets (the corridor). Otherwise, the actuarial gains and losses are not recognised.
78
79
Reference

3. Significant accounting policies (continued) (x) Employee benefits (continued) (ii) Defined benefit plans (continued) When the benefits of a plan are improved, the portion of the increased benefit relating to past service by employees is recognised in profit or loss on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits vest immediately, the expense is recognised immediately in profit or loss. When the calculations above result in a benefit to the Group, the recognised asset is limited to the net total of any cumulative unrecognised actuarial losses and past service costs and the present value of any economic benefits available in the form of any refunds from the plan or reductions in future contributions to the plan. In order to calculate the present value of economic benefits, consideration is given to any minimum funding requirements that apply to any plan in the Group. An economic benefit is available to the Group if it is realisable during the life of the plan or on settlement of the plan liabilities. (iii) Other long-term employee benefits The Groups net obligation in respect of long-term employee benefits other than pension plans is the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value, and the fair value of any related assets is deducted. The discount rate is the yield at the reporting date on AA credit-rated bonds that have maturity dates approximating the terms of the Groups obligations and that are denominated in the same currency in which the benefits are expected to be paid. The calculation is performed using the projected unit credit method. Any actuarial gains and losses are recognised in profit or loss in the period in which they arise. (iv) Termination benefits Termination benefits are recognised as an expense when the Group is committed demonstrably, without realistic possibility of withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits for voluntary redundancies are recognised if the Group has made an offer of voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably. If benefits are payable more than 12 months after the reporting date, then they are discounted to their present value. (v) Short-term employee benefits Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.
IAS 19.128
IAS 19.133
IAS 19.10
80

IFRS 2.IG19
IFRSs do not specify whether the remeasurement of the liability in a cash-settled share-based payment arrangement is presented as an employee cost or as finance income or expense. In our view, both presentations are permitted and an entity should choose an accounting policy to be applied consistently. This issue is discussed in our publication Insights into IFRS (4.5.630.30). When applicable, an entity discloses how it determined the fair value of equity instruments other than share options, granted in transactions in which the fair value of goods and services received was determined based on fair value of the equity instruments granted. Such disclosure includes:
2.
IFRS 2.47(b)
if fair value was not measured on the basis of an observable market price, then how it was determined; whether and how expected dividends were incorporated into the measurement of fair value; and whether and how any other features of the equity instruments granted were incorporated into the measurement of fair value.
IFRS 2.47(c)
When applicable, an entity discloses how it determined the incremental fair value of any share-based payment arrangements that were modified during the period. The issuer of a financial instrument classifies the instrument, or its component parts as a financial liability, a financial asset or an equity instrument in accordance with the substance of the contractual arrangements and the definitions in IAS 32.
3.
IAS 32.15, 18
4.
he following standards, interpretations and amendments have been issued with effective T dates after 1 April 2010: In November 2009 the IASB revised IAS 24 Related Party Disclosures with an effective date of 1 January 2011. In November 2009 the IASB issued Prepayments of a Minimum Funding Requirement Amendments to IFRIC 14: IAS 19 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction with an effective date of 1 January 2011. In November 2009 the IASB issued IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments, with an effective date of 1 July 2010. In May 2010 the IASB issued Improvements to IFRSs 2010, which comprises 11 amendments to 7 standards. Effective dates, early application and transitional requirements are addressed on a standard-by-standard basis. The majority of the amendments will be effective 1 January 2011. Other than the amendment to IAS 1 that has been adopted early in these illustrative financial statements, the amendments have not been included in these illustrative financial statements under the new standards and interpretations not yet adopted, as the appropriate level of disclosures will depend on the circumstances of a particular entity. In October 2010 the IASB issued Disclosures Transfers of Financial Assets (Amendments to IFRS 7) with an effective date of 1 July 2011. In December 2010 the IASB issued Deferred Tax: Recovery of Underlying Assets (Amendments to IAS 12) with an effective date of 1 January 2012. In May 2011 the IASB issued IFRS 10 Consolidated Financial Statements; IFRS 11 Joint Arrangements; IFRS 12 Disclosure of Interests in Other Entities; IFRS 13 Fair Value Measurement and revised versions of IAS 27 Separate Financial Statements and IAS 28 Investments in Associates and Joint Ventures with effective dates of 1 January 2013.
IAS 1.31
5.
When new standards, amendments to standards and interpretations will have no, or no material, effect on the consolidated financial statements of the Group, it is not necessary to list them as such a disclosure would not be material.
81
Reference
3. Significant accounting policies (continued) (x) Employee benefits (continued) (vi) Share-based payment transactions IFRS 2.15, 19, 21A The grant date fair value of equity-settled share-based payment awards (i.e. stock options) granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period in which the employees unconditionally become entitled to the awards. The amount recognised as an expense is adjusted to reflect the number of share awards for which the related service and non-market performance vesting conditions are expected to be met such that the amount ultimately recognised as an expense is based on the number of share awards that do meet the related service and non-market performance conditions at the vesting date. For share-based payment awards with non-vesting conditions, the grant-date fair value of the share-based payment is measured to reflect such conditions and there is no trueup for differences between expected and actual outcomes.
IFRS 2.32
The fair value of the amount payable to employees in respect of share appreciation rights that are settled in cash is recognised as an expense with a corresponding increase in liabilities over the period in which the employees unconditionally become entitled to payment. The liability is remeasured at each reporting date and at settlement date. Any changes in the fair value of the liability are recognised as personnel expense in profit or loss.1, 2 (y) Share capital and reserves (i) Perpetual bonds3 The Group classifies capital instruments as financial liabilities or equity instruments in accordance with the substance of the contractual terms of the instruments. The Groups perpetual bonds are not redeemable by holders and bear an entitlement to distributions that is non-cumulative and at the discretion of the board of directors. Accordingly, they are presented as a component of issued capital within equity. (ii) Share issue costs Incremental costs directly attributable to the issue of an equity instrument are deducted from the initial measurement of the equity instruments. (z) Earnings per share The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Bank by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise share options granted to employees. (aa) Segment reporting An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Groups other components, whose operating results are reviewed regularly by the Group Management Committee (being the chief operating decision maker) to make decisions about resources allocated to each segment and assess its performance, and for which discrete financial information is available. (ab) New standards and interpretations not yet adopted4, 5 A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after 1 April 2010, and have not been applied in preparing these consolidated financial statements. None of these is expected to have a significant effect on the consolidated financial statements of the Group.
IFRS 7 .21
IAS 33.10, 31
IFRS 8.5
IAS 8.30, 31
82

IFRS 7 .1(b), 31, 35
An entity discloses information that enables users of its financial statements to evaluate the nature and extent of risks arising from financial instruments to which the Group is exposed at the end of and during the reporting period. Those risks typically include, but are not limited to, credit risk, liquidity risk and market risk. For each type of risk, an entity discloses: (1) the exposures to risk and how they arise; (2) its objectives, policies and processes for managing the risk and the methods used to measure the risk; and (3) any changes in (1) or (2) from the previous period.
IFRS 7 .33
IFRS 7 .B6
The disclosures required by paragraphs 31 to 42 of IFRS 7 in respect of the nature and extent of risks arising from financial instruments are either presented in the financial statements or incorporated by cross-reference from the financial statements to some other statement, such as a management commentary or risk report, that is available to users of the financial statements on the same terms as the financial statements and at the same time. The location of these disclosures may be limited by local laws. In these illustrative financial statements, these disclosures have been presented in the financial statements. IFRS 7 requires only risk disclosures for financial instruments. Financial risk exposures from non-financial instruments, e.g. credit risk from operating leases, are disclosed separately if an entity chooses to disclose its entire financial risk position.
83
Reference
IFRS 7 .31 IFRS 7 .31, 32

4. Financial risk management (a) Introduction and overview1 The Group has exposure to the following risks from financial instruments:

credit risk liquidity risk market risks operational risks.
IFRS 7 .33 IAS 1.134
This note presents information about the Groups exposure to each of the above risks, the Groups objectives, policies and processes for measuring and managing risk, and the Groups management of capital. Risk management framework The board of directors has overall responsibility for the establishment and oversight of the Groups risk management framework. The Board has established the Group Asset and Liability Credit and Operational Risk committees (ALCO), which are responsible for developing and monitoring Group risk management policies in their specified areas. All Board committees have both executive and non-executive members and report regularly to the board of directors on their activities. The Groups risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions, products and services offered. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment, in which all employees understand their roles and obligations. The Group Audit Committee is responsible for monitoring compliance with the Groups risk management policies and procedures, and for reviewing the adequacy of the risk management framework in relation to the risks faced by the Group. The Group Audit Committee is assisted in these functions by Internal Audit. Internal Audit undertakes both regular and ad-hoc reviews of risk management controls and procedures, the results of which are reported to the Group Audit Committee.
IFRS 7 .33
(b) Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Groups loans and advances to customers and other banks, and investment debt securities. For risk management reporting purposes the Group considers and consolidates all elements of credit risk exposure (such as individual obligor default risk, country and sector risk). For risk management purposes, credit risk arising on trading assets is managed independently and information thereon is disclosed below. The market risk in respect of changes in value in trading assets arising from changes in market credit spreads applied to debt securities and derivatives included in trading assets is managed as a component of market risk, further details are provided in note 4(d) below.
84

IFRS 7 .33
The nature and extent of information provided by an entity in this section will depend greatly on its activities with financial instruments and exposure to credit risk.
85
Reference
IFRS 7 .31

4. Financial risk management (continued) (b) Credit risk (continued) Management of credit risk1 The board of directors has delegated responsibility for the oversight of credit risk to its Group Credit Committee. A separate Group Credit department, reporting to the Group Credit Committee, is responsible for management of the Groups credit risk, including:
Formulating credit policies in consultation with business units, covering collateral requirements, credit assessment, risk grading and reporting, documentary and legal procedures, and compliance with regulatory and statutory requirements. Establishing the authorisation structure for the approval and renewal of credit facilities. Authorisation limits are allocated to business unit Credit Officers. Larger facilities require approval by Group Credit, Head of Group Credit, Group Credit Committee or the board of directors as appropriate. Reviewing and assessing credit risk. Group Credit assesses all credit exposures in excess of designated limits, prior to facilities being committed to customers by the business unit concerned. Renewals and reviews of facilities are subject to the same review process. Limiting concentrations of exposure to counterparties, geographies and industries (for loans and advances), and by issuer, credit rating band, market liquidity and country (for investment securities). Developing and maintaining the Groups risk gradings in order to categorise exposures according to the degree of risk of financial loss faced and to focus management on the attendant risks. The risk grading system is used in determining where impairment provisions may be required against specific credit exposures. The current risk grading framework consists of eight grades reflecting varying degrees of risk of default and the availability of collateral or other credit risk mitigation. The responsibility for setting risk grades lies with the final approving executive/committee as appropriate. Risk grades are subject to regular reviews by Group Risk. Reviewing compliance of business units with agreed exposure limits, including those for selected industries, country risk and product types. Regular reports on the credit quality of local portfolios are provided to Group Credit who may require appropriate corrective action to be taken. Providing advice, guidance and specialist skills to business units to promote best practice throughout the Group in the management of credit risk.
Each business unit is required to implement Group credit policies and procedures, with credit approval authorities delegated from the Group Credit Committee. Each business unit has a Chief Credit Risk officer who reports on all credit related matters to local management and the Group Credit Committee. Each business unit is responsible for the quality and performance of its credit portfolio and for monitoring and controlling all credit risks in its portfolios, including those subject to central approval. Regular audits of business units and Group Credit processes are undertaken by Internal Audit.
86

IFRS 7 .34, 36-38
IFRS 7 requires disclosure of information on each risk in a format based on the information provided internally to key management personnel of the entity (as defined in IAS 24), e.g. the entitys board of directors or chief executive. The standard also requires specific additional disclosures to be made unless covered by the information provided to management. The example shown in these illustrative financial statements in relation to credit risk assumes that the primary basis for reporting to key management personnel on credit risk is an analysis of the value of each class of non-trading assets for each internal risk grade, and the provisions recognised to cover impairment losses. The illustrative table of quantitative credit risk information therefore combines a number of the specific requirements of IFRS 7 .36-38 with the management information required under IFRS 7 .34. However, other presentations are possible.
2.
IFRS 7 .34
In these illustrative financial statements assets that are part of a portfolio that has a collective provision for impairment are disclosed separately, since this information is provided internally to management. Alternatively these assets can be analysed in the neither past due nor impaired category.
87
Reference
IFRS 7 .31

4. Financial risk management (continued) (b) Credit risk (continued) Exposure to credit risk1
Loans and advances Loans and advances to banks 2010 2011 2010 Investment debt securities 2011 2010 to customers In millions of euro Note 2011
IFRS 7 .36 IFRS 7 .34(a) IFRS 7 .36(a)
Carrying amount
21, 22, 23
63,070
56,805
5,572
4,707
5,807
4,843
IFRS 7 .37(b) IFRS 7 .37(b) IFRS 7 .37(b) IFRS 7 .37(b) IFRS 7 .37(b) IFRS 7 .37(b)
Assets at amortised cost Individually impaired: Grade 6: Impaired Grade 7: Impaired Grade 8: Impaired Gross amount Allowance for impairment 21, 22 Carrying amount Collectively impaired:2 Grade 1-3: Low-fair risk Grade 4-5: Watch list Grade 6: Impaired Grade 7: Impaired Grade 8: Impaired Gross amount Allowance for impairment Carrying amount Past due but not impaired: Grade 1-3: Low-fair risk Grade 4-5: Watch list Carrying amount Past due comprises: 30-60 days 60-90 days 90-180 days 180 days + Carrying amount Neither past due nor impaired: Grade 1-3: Low-fair risk Grade 4-5: Watch list Carrying amount Includes accounts with renegotiated terms Carrying amount amortised cost 21, 22, 23
2,920 1,460 487 4,867 (1,453) 3,414
2,277 1,139 380 3,796 (1,324) 2,472
15 7 2 24 (12) 12
12 6 2 20 (5) 15
135 165 300 (125) 175
IFRS 7 .34(a) IFRS 7 .34(a) IFRS 7 .34(a) IFRS 7 .34(a) IFRS 7 .34(a) IFRS 7 .34(a) IFRS 7 .34(a) IFRS 7 .34(a)
22
1,812 389 207 130 52 2,590 (220) 2,370
1,476 317 169 106 42 2,110 (198) 1,912
IFRS 7 .34(a) IFRS 7 .34(a) IFRS 7 .34(a)
470 202 672
328 141 469
IFRS 7 .37(a) IFRS 7 .37(a) IFRS 7 .37(a) IFRS 7 .37(a) IFRS 7 .37(a)
512 141 14 5 672
461 8 469
IFRS 7 .36(c) IFRS 7 .36(c) IFRS 7 .36(c) IFRS 7 .36(d)
48,665 3,963 52,628 1,132 59,084
45,607 3,200 48,807 1,048 53,660
5,560 5,560 111 5,572
4,692 4,692 94 4,707
1,282 1,282 1,457
101 101 101
88
89
Reference
IFRS 7 .31

4. Financial risk management (continued) (b) Credit risk (continued) Exposure to credit risk (continued)
Loans and advances Loans and advances to banks 2010 2011 2010 Investment debt securities 2011 2010 to customers In millions of euro Note 2011
IFRS 7 .36 IFRS 7 .34(a)
IFRS 7 .37(b) IFRS 7 .37(b) IFRS 7 .37(b) IFRS 7 .37(b) IFRS 7 .37(b) IFRS 7 .37(b)
Available-for-sale debt assets Individually impaired: Grade 6: Impaired Grade 7: Impaired Grade 8: Impaired Gross amount Allowance for impairment 23 Carrying amount Neither past due nor impaired: Grade 1-3: Low-fair risk Grade 4-5: Watch list Carrying amount Includes accounts with renegotiated terms Carrying amount fair value 23 Debt assets at fair value through profit or loss Grade 1-3: Low-fair risk Grade 4-5: Watch list Grade 6: Distressed Grade 7: Distressed Grade 8: Distressed Carrying amount fair value 21, 22, 23 Total carrying amount 21, 22, 23
72 36 12 120 (35) 85
IFRS 7 .36(c) IFRS 7 .36(c) IFRS 7 .36(c) IFRS 7 .36(d)
1,443 112 1,555 50 1,640
IFRS 7 .34(a) IFRS 7 .34(a) IFRS 7 .34(a) IFRS 7 .34(a) IFRS 7 .34(a) IFRS 7 .34(a)
3,188 399 199 120 80 3,986 63,070
2,516 331 161 95 42 3,145 56,805
5,572
4,707
2,934 858 172 194 192 4,350 5,807
2,243 687 103 38 31 3,102 4,843
IFRS 7 .36(a), B10(d)
In addition to the above, the Group had entered into lending commitments of 1,883 million (2010: 1,566 million) with counterparties graded 1 to 3. The Group has issued financial guarantee contracts in respect of debtors graded 1 to 2 and for which the maximum amount payable by the Group, assuming all guarantees are called on, is 58 million (2010: 49 million). Impaired loans and investment debt securities Individually impaired loans and securities are loans and advances and investment debt securities (other than those carried at fair value through profit or loss) for which the Group determines that there is objective evidence of impairment and it does not expect to collect all principal and interest due according to the contractual terms of the loan/investment security agreement(s). These loans are graded 6 to 8 in the Groups internal credit risk grading system. Loans and advances and investment debt securities carried at fair value through profit or loss are not assessed for impairment but are subject to the same internal grading system.
IFRS 7 .36(a), B10(c)
90
91
Reference
IFRS 7 .31

4. Financial risk management (continued) (b) Credit risk (continued) Past due but not impaired loans and investment debt securities Past due but not impaired loans and investment debt securities, other than those carried at fair value through profit or loss, are those for which contractual interest or principal payments are past due, but the Group believes that impairment is not appropriate on the basis of the level of security/collateral available and/or the stage of collection of amounts owed to the Group. Loans with renegotiated terms Loans with renegotiated terms are loans that have been restructured due to deterioration in the borrowers financial position. In respect of some of these loans the Group has made concessions that it would not otherwise consider. Once the loan is restructured it remains in this category independent of satisfactory performance after restructuring. Allowances for impairment The Group establishes an allowance for impairment losses on assets carried at amortised cost (and prior to 1 April 2010 on assets classified as available-for-sale) that represents its estimate of incurred losses in its loan and investment debt security portfolio. The main components of this allowance are a specific loss component that relates to individually significant exposures, and, for assets measured at amortised cost, a collective loan loss allowance established for groups of homogeneous assets as well as for individually significant exposures that were subject to individual assessment for impairment but not found to be individually impaired. Assets carried at fair value through profit or loss are not subject to impairment testing as the measure of fair value reflects the credit quality of each asset. Write-off policy The Group writes off a loan or an investment debt security balance, and any related allowances for impairment losses, when Group Credit determines that the loan or security is uncollectible. This determination is made after considering information such as the occurrence of significant changes in the borrowers/issuers financial position such that the borrower/issuer can no longer pay the obligation, or that proceeds from collateral will not be sufficient to pay back the entire exposure. For smaller balance standardised loans, write-off decisions generally are based on a product-specific past due status. Set out below is an analysis of the gross and net (of allowances for impairment) amounts of individually impaired assets by risk grade.
Loans and advances to customers In millions of euro Gross Net Loans and advances to banks Gross Net Investment debt securities Gross Net
IFRS 7 .37(b) IFRS 7 .37(b) IFRS 7 .37(b)
31 March 2011 Grade 6: Individually impaired Grade 7: Individually impaired Grade 8: Individually impaired
2,920 1,460 487 4,867
2,348 947 119 3,414 1,786 611 75 2,472
15 7 2 24 12 6 2 20
9 2 1 12 10 4 1 15
135 165 300 72 36 12 120
125 50 175 59 22 4 85
IFRS 7 .37(b) IFRS 7 .37(b) IFRS 7 .37(b)
31 March 2010 Grade 6: Individually impaired Grade 7: Individually impaired Grade 8: Individually impaired
2,277 1,139 380 3,796
92
93
Reference
IFRS 7 .31
4. Financial risk management (continued) (b) Credit risk (continued) Write-off policy (continued) IFRS 7 .36(b), 37(c) The Group holds collateral against loans and advances to customers in the form of mortgage interests over property, other registered securities over assets, and guarantees. Estimates of fair value are based on the value of collateral assessed at the time of borrowing, and generally are not updated except when a loan is individually assessed as impaired. Collateral generally is not held over loans and advances to banks, except when securities are held as part of reverse repurchase and securities borrowing activity. Collateral usually is not held against investment securities, and no such collateral was held at 31 March 2011 (2010: no collateral held). An estimate made at the time of borrowing of the fair value of collateral and other security enhancements held against loans and advances to customers and banks is shown below:
IFRS 7 .36 IFRS 7 .34(a) IFRS 7 .37(c) In millions of euro Loans and advances to customers 2011 2010 Loans and advances to banks 2011 2010
IFRS 7 .37(c)
Against individually impaired: Property Debt securities Equities Other Against collectively impaired: Property Debt securities Equities Other Against past due but not impaired: Property Debt securities Other Against neither past due nor impaired: Property Debt securities Equities Other Against fair value through profit or loss: Property Debt securities Equities Other
2,331 885 238 175 1,205 438 227 102 327 221 74 38,992 11,022 2,210 1,530 1,100 432 83 10 61,602
1,822 449 289 213 1,065 344 156 247 188 136 36,221 9,095 2,325 1,721 1,243 502 98 11 56,125
579 579
512 512
IFRS 7 .36(b) IFRS 7 .38
Details of financial and non-financial assets obtained by the Group during the year by taking possession of collateral held as security against loans and advances as well as calls made on credit enhancements and held at the year ended 31 March are shown below:
In millions of euro 2011 2010
Property Debt securities Other
812 107 63
794 116 44
The Groups policy is to pursue timely realisation of the collateral in an orderly manner. The Group generally does not use the non-cash collateral for its own operations.
94

IFRS 7 .34(c)
IFRS 7 requires separate disclosure of concentrations of risk unless readily apparent from the other information provided.
95
Reference
IFRS 7 .31

4. Financial risk management (continued) (b) Credit risk (continued) Concentrations of credit risk The Group monitors concentrations of credit risk by sector and by geographic location. An analysis of concentrations of credit risk from loans and advances and investment securities at the reporting date is shown below:1
Loans and advances to customers Loans and advances to banks 2011 2010 Investment debt securities 2011 2010

IFRS 7 .34(c)
In millions of euro
Note
2011
2010
Carrying amount
IFRS 7 .34(c)
21, 22, 23
63,070
56,805
5,572
4,707
5,807
4,843
Concentration by sector Corporate: Real estate Transport Funds Other Government Banks Retail: Mortgages Unsecured lending
42,414 16,966 12,724 9,331 3,393 20,656 14,547 6,109 63,070
37 ,987 15,574 10,636 8,737 3,040 18,818 13,361 5,457 56,805
5,572 5,572
4,707 4,707
4,392 2,399 1,928 65 1,317 98 98 5,807
3,454 2,042 1,250 162 1,302 87 87 4,843
IFRS 7 .34(c)
Concentration by location North America Europe Asia Pacific Middle East and Africa
12,649 36,238 8,188 5,995 63,070
11,393 32,656 7 ,356 5,400 56,805
1,118 3,139 722 593 5,572
944 2,652 664 447 4,707
2,374 2,443 528 462 5,807
2,146 1,861 446 390 4,843
Concentration by location for loans and advances is measured based on the location of the Group entity holding the asset, which has a high correlation with the location of the borrower. Concentration by location for investment securities is measured based on the location of the issuer of the security. Exposure to sovereign debt of selected eurozone countries During the year ended 31 March 2011 significant concerns emerged over sovereign credit risk in some eurozone countries. The Group managed its exposure to the affected eurozone markets very closely during the year, adjusting the relevant limits where necessary. As a result, the overall quality of the sovereign debt portfolio remains strong.
96
97
Reference
IFRS 7 .31

4. Financial risk management (continued) (b) Credit risk (continued) Exposure to sovereign debt of selected eurozone countries (continued) The table below shows the carrying amounts of the Groups exposures to Greece, Ireland, Portugal and Spain. Assets are stated gross of any risk mitigation. The Group has not recognised any impairment against the exposures accounted for at amortised cost or, for the year ended 31 March 2011 and 31 March 2010, also against assets classified as available-for-sale.
In millions of euro Greece Ireland Portugal Spain Total
As at 31 March 2011 Trading assets: Derivatives Investment securities: Government bonds, at fair value Government bonds, at amortised cost
12 12
1 20 21
14 14
3 10 70 83
4 10 116 130
As at 31 March 2010 Trading assets: Derivatives Investment securities: Government bonds, available-for-sale Government bonds, at amortised cost
8 8
2 30 32
34 34
3 80 10 93
5 152 10 167
IFRS 7 .34(a), 7 .36(a)
Trading assets The Group held trading assets, including derivative assets held for risk management purposes, but excluding equity securities, of 17 ,064 million at 31 March 2011 (2010: 16,079 million). An analysis of the credit quality of the maximum credit exposure, based on rating agency [X] ratings where applicable, is as follows:
IFRS 7 .36(c)
Government bonds and treasury bills: Rated AAA Corporate bonds: Rated AA- to AA+ Rated A- to A+ Asset-backed securities: Rated AA- to AA+ Rated A- to A+ Derivative assets: Government counterparties Bank and financial institution counterparties Corporate counterparties Fair value and carrying amount
19 19 19 19 19
10,221 3,054 1,437 397 119 459 1,157 220 17 ,064
9,842 3,256 814 417 46 375 1,193 136 16,079
98

IFRS 7 .34, 39(c)
IFRS 7 requires disclosure of information on each risk in a format based on the information provided internally to key management personnel of the entity (as defined in IAS 24), e.g. the entitys board of directors or chief executive. The example shown in these illustrative financial statements in relation to liquidity risk assumes that the primary basis for reporting to key management personnel on liquidity risk is the ratio of liquid assets to deposits from customers. However, other presentations are possible.
99
Reference
IFRS 7 .31

4. Financial risk management (continued) (b) Credit risk (continued) Trading assets (continued) It is the Groups policy to enter into master netting and margining agreements with all derivative counterparties. At 31 March 2011 the Group had obtained collateral of 825 million from derivative counterparties (2010: 777 million) and would be entitled to offset derivative and other liabilities of 434 million (2010: 348 million) against derivative assets in the event of counterparty defaults. Cash and cash equivalents The Group held cash and cash equivalents of 2,907 million at 31 March 2011 (2010: 2,992 million) which represents its maximum credit exposure on these assets. The cash and cash equivalents are held with the central bank, which is rated AAA and bank and financial institution counterparties, which are rated AA- to AA+, based on rating agency [X]s ratings. Settlement risk The Groups activities may give rise to risk at the time of settlement of transactions and trades. Settlement risk is the risk of loss due to the failure of an entity to honour its obligations to deliver cash, securities or other assets as contractually agreed. For certain types of transactions the Group mitigates this risk by conducting settlements through a settlement/clearing agent to ensure that a trade is settled only when both parties have fulfilled their contractual settlement obligations. Settlement limits form part of the credit approval/limit monitoring process described earlier. Acceptance of settlement risk on free settlement trades requires transaction specific or counterparty specific approvals from Group Risk.
IFRS 7 .36(b)
IFRS 7 .34(a), 36(a), (c)
IFRS 7 .39
(c) Liquidity risk1 Liquidity risk is the risk that the Group will encounter difficulty in meeting obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. Management of liquidity risk The Groups approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Groups reputation. Group central Treasury receives information from other business units regarding the liquidity profile of their financial assets and liabilities and details of other projected cash flows arising from projected future business. Group central Treasury then maintains a portfolio of short-term liquid assets, largely made up of short-term liquid investment securities, loans and advances to banks and other inter-bank facilities, to ensure that sufficient liquidity is maintained within the Group as a whole. The liquidity requirements of business units and subsidiaries are met through short-term loans from Group central Treasury to cover any short-term fluctuations and longer term funding to address any structural liquidity requirements. When an operating subsidiary or branch is subject to a liquidity limit imposed by its local regulator, the subsidiary or branch is responsible for managing its overall liquidity within the regulatory limit in co-ordination with Group central Treasury. Group central Treasury monitors compliance of all operating subsidiaries and foreign branches with local regulatory limits on a daily basis.
IFRS 7 .39(b)
100
101
Reference
IFRS 7 .31 IFRS 7 .39

4. Financial risk management (continued) (c) Liquidity risk (continued) Management of liquidity risk (continued) The daily liquidity position is monitored and regular liquidity stress testing is conducted under a variety of scenarios covering both normal and more severe market conditions. All liquidity policies and procedures are subject to review and approval by ALCO. Daily reports cover the liquidity position of both the Group and operating subsidiaries and foreign branches. A summary report, including any exceptions and remedial action taken, is submitted regularly to ALCO. The Group relies on deposits from customers and banks, and issued debt securities and subordinated liabilities as its primary sources of funding. While the Groups debt securities and subordinated liabilities have maturities of over one year, deposits from customers and banks generally have shorter maturities and a large proportion of them are repayable on demand. The short-term nature of these deposits increases the Groups liquidity risk and the Group actively manages this risk through maintaining competitive pricing and constant monitoring of market trends. During the year ended 31 March 2011 customer deposits in savings products increased as a proportion of total deposits as a result of new deposit products offered by the Group. Exposure to liquidity risk The key measure used by the Group for managing liquidity risk is the ratio of net liquid assets to deposits from customers. For this purpose net liquid assets are considered as including cash and cash equivalents and investment grade debt securities for which there is an active and liquid market less any deposits from banks, debt securities issued, other borrowings and commitments maturing within the next month. A similar, but not identical, calculation is used to measure the Groups compliance with the liquidity limit established by the Groups lead regulator, [Name of regulator]. Details of the reported Group ratio of net liquid assets to deposits from customers at the reporting date and during the year were as follows:
2011 2010
IFRS 7 .34(a), 39(c)
At 31 March Average for the year Maximum for the year Minimum for the year
22.0% 22.6% 24.2% 18.9%
23.7% 23.1% 24.7% 21.2%
102

IFRS 7 .39(a), (b), B11B
IFRS 7 requires to disclose a maturity analysis disclosure for: non-derivative financial liabilities, including issued financial guarantee contracts, showing their remaining contractual maturities; and derivative financial liabilities, which should include the remaining contractual maturities for those derivative financial liabilities for which contractual maturities are essential for an understanding of the timing of the cash flows, e.g. loan commitments and interest rate swaps designated in a cash flow hedge relationship.
IFRS 7 .B11C (c)
In the case of issued financial guarantee contracts, the maximum amount of the guarantee should be disclosed in the earliest period in which the guarantee could be called. The contractual amounts disclosed in this analysis are gross undiscounted cash flows and therefore may not agree with the carrying amounts in the statement of financial position. IFRS 7 does not define contractual maturities. It therefore leaves open to interpretation the amounts that need to be included in the analysis for certain types of financial liabilities, such as derivatives and perpetual instruments. In our view, both the interest and principal cash flows should be included in the analysis, as this best represents the liquidity risk being faced by the entity. This issue is discussed in our publication Insights into IFRS (5.6.390.70).
2.
IFRS 7 .B11D
IFRS 7 .B11
In preparing the contractual maturity analyses for financial liabilities, an entity uses its judgement to determine an appropriate number of time bands. An entity discloses how it manages liquidity risk inherent in its maturity analyses for derivative and non-derivative financial liabilities. An entity also discloses a maturity analysis of financial assets that it holds for managing liquidity risk, if such information is necessary to enable users of its financial statements to evaluate the nature and extent of liquidity risk. In these illustrative financial statements it is assumed that disclosure of contractual maturities for derivative financial liabilities held for risk management purposes and those entered into by the Group with its customers are essential for an understanding of the timing of the cash flows.
IFRS 7 .B11E
3.
IFRS 7 .B11B
103
Reference
IFRS 7 .31
4. Financial risk management (continued) (c) Liquidity risk (continued) IFRS 7 .39(a), (b) Maturity analysis for financial liabilities1, 2
Gross nominal Less Carrying inflow/ than amount (outflow) 1 month 1-3 3 months months to 1 year 1-5 years More than 5 years
IFRS 7 .B11
In millions of euro
Note
IFRS 7 .39(a)
IFRS 7 .B11C(c) IFRS 7 .B11D(e)
31 March 2011 Non-derivative liabilities Trading liabilities Deposits from banks Deposits from customers Debt securities issued Subordinated liabilities Issued financial guarantee contracts Unrecognised loan commitments
19 28 29 30 31 33
418 (434) (355) (58) (21) 17 ,878 (19,161) (15,953) (2,364) (844) 53,646 (55,340) (39,318) (741) (3,540) (11,741) 11,227 (12,881) (201) (12,680) 5,642 (6,660) - (5,499) (1,161) 32 (58) (58) -
(1,883) (1,883)
88,843 (96,417) (57 ,509) (3,163) (4,664) (29,920) (1,161)

IFRS 7 .39(b), B11B
Derivative liabilities3 Trading: Outflow Inflow Risk management: Outflow Inflow
19
408 (3,217) 2,789 (398) (1,895) 138 1,799 (856) 823 (68) 29 (6,113) 5,509 (643) (302) 171 (131)
20
828 (9,855) 9,010 1,236 (1,273) (476) (1,506) (1,458) 466 1,472 1,392 (270) (130) (99)
IFRS 7 .39(a)
IFRS 7 .B11C(c) IFRS 7 .B11D(e)
31 March 2010 Non-derivative liabilities Trading liabilities Deposits from banks Deposits from customers Debt securities issued Subordinated liabilities Issued financial guarantee contracts Unrecognised loan commitments
19 28 29 30 31 33
480 (560) (471) (66) (23) 15,430 (17 ,391) (14,613) (2,046) (732) 48,904 (50,292) (36,758) (713) (3,443) (9,378) 10,248 (11,785) - (11,785) 4,985 (5,898) - (4,782) 28 (49) (49) -
(1,116) (1,116)
(1,566) (1,566)
80,075 (87 ,541) (53,408) (2,825) (4,247) (25,945)

IFRS 7 .39(b), B11B
Derivative liabilities Trading: Outflow Inflow Risk management: Outflow Inflow
19
372 (2,925) 2,533 (381) (1,651) 122 1,583 (835) 789 (58) 39 (39) 20 (19)
20
789 (7 ,941) 7 ,115 1,161 (1,218) (313) (1,041) (1,423) (5,125) 299 972 1,341 4,483 (273) (137) (128) (661)
104

IFRS 7 .39(c), B11E
An entity should explain how it manages the liquidity risk inherent in the maturity analyses. This includes a maturity analysis for financial assets it holds as part of managing liquidity risk, e.g. financial assets that are expected to generate cash inflows to meet cash outflows on financial liabilities, if such information is necessary to enable financial statement users to evaluate the nature and extent of liquidity risk.
105
Reference
IFRS 7 .31
4. Financial risk management (continued) (c) Liquidity risk (continued) Maturity analysis for financial liabilities (continued) IFRS 7 .39(a), (c), The previous table shows the undiscounted cash flows on the Groups non-derivative financial B11C, B11D liabilities, including issued financial guarantee contracts, and unrecognised loan commitments on the basis of their earliest possible contractual maturity. For issued financial guarantee contracts, the maximum amount of the guarantee is allocated to the earliest period in which the guarantee could be called. The Groups expected cash flows on these instruments vary significantly from this analysis. For example, demand deposits from customers are expected to maintain a stable or increasing balance and unrecognised loan commitments are not all expected to be drawn down immediately.
IFRS 7 .39(b), (c), B11B, B11D
The gross nominal inflow/(outflow) disclosed in the previous table represents the contractual undiscounted cash flows relating to derivative financial liabilities held for risk management purposes. The disclosure shows a net amount for derivatives that are net settled, but a gross inflow and outflow amount for derivatives that have simultaneous gross settlement, e.g. forward exchange contracts and currency swaps. Trading derivative liabilities forming part of the Groups proprietary trading operations are expected to be closed out prior to contractual maturity. Hence, in respect of these derivative liabilities the maturity analysis in the previous table reflects the fair values at the date of the statement of financial position since contractual maturities are not reflective of the liquidity risk exposure arising from these positions. These fair values are included in the less than one month column. In addition, trading derivative liabilities comprise also derivatives that are entered into by the Group with its customers. In respect of these liabilities, which are usually not closed out prior to contractual maturity, the maturity analysis in the previous table reflects the contractual undiscounted cash flows as the Group believes that contractual maturities are essential for understanding the timing of cash flows associated with these derivative positions. To manage the liquidity risk arising from financial liabilities, the Group holds liquid assets comprising cash and cash equivalents and investment grade investment securities for which there is an active and liquid market. These assets can be readily sold to meet liquidity requirements. Hence, the Group believes that it is not necessary to disclose a maturity analysis in respect of these assets to enable users to evaluate the nature and extent of liquidity risk.1
106

IFRS 7 .34, 40, 41
IFRS 7 requires disclosure of information on each risk in a format based on the information provided internally to key management personnel of the entity (as defined in IAS 24), e.g. the entitys board of directors or chief executive. The example shown in these illustrative financial statements in relation to market risk from interest rates illustrates Value at Risk and a gap analysis, two common approaches to the measurement and management of market risk arising from interest rates. The example assumes that the primary basis for reporting to key management personnel on market risk from interest rates is a Value at Risk measure for traded portfolios and a gap and sensitivity analysis for non-trading portfolios. In respect of foreign exchange risk, the example assumes that the primary basis for reporting to key management personnel on market risk from foreign exchange rates is a Value at Risk measure and an analysis of concentration risk in relation to individual currencies. However, other presentations are possible.
107
Reference
IFRS 7 .31
4. Financial risk management (continued) 1 IFRS 7 .31, 32 (d) Market risks Market risk is the risk that changes in market prices, such as interest rates, equity prices, foreign exchange rates and credit spreads (not relating to changes in the obligors/issuers credit standing) will affect the Groups income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return on risk. Management of market risks The Group separates its exposure to market risk between trading and non-trading portfolios. Trading portfolios are mainly held by the Investment Banking unit, and include positions arising from market making and proprietary position taking, together with financial assets and liabilities that are managed on a fair value basis. With the exception of translation risk arising on the Groups net investment in its foreign operations, all foreign exchange risk within the Group is transferred and sold down by Group central Treasury to the Investment Banking unit. Accordingly, the foreign exchange position is treated as part of the Groups trading portfolios for risk management purposes. Overall authority for market risk is vested in ALCO. Group Market Risk is responsible for the development of detailed risk management policies (subject to review and approval by ALCO) and for the day-to-day review of their implementation. Exposure to market risks trading portfolios The principal tool used to measure and control market risk exposure within the Groups trading portfolios is Value at Risk (VaR). The VaR of a trading portfolio is the estimated loss that will arise on the portfolio over a specified period of time (holding period) from an adverse market movement with a specified probability (confidence level). The VaR model used by the Group is based upon a 99 percent confidence level and assumes a 10-day holding period. The VaR model used is based mainly on historical simulation. Taking account of market data from the previous two years, and observed relationships between different markets and prices, the model generates a wide range of plausible future scenarios for market price movements.
IFRS 7 .41(a)
108
109
Reference
IFRS 7 .31

4. Financial risk management (continued) (d) Market risks (continued) Exposure to market risks trading portfolios (continued) Although VaR is an important tool for measuring market risk, the assumptions on which the model is based do give rise to some limitations, including the following.
IFRS 7 .41(b)
A 10-day holding period assumes that it is possible to hedge or dispose of positions within that period. This may not be the case for certain highly illiquid assets or in situations in which there is severe general market illiquidity. A 99 percent confidence level does not reflect losses that may occur beyond this level. Even within the model used there is a one percent probability that losses could exceed the VaR. VaR is calculated on an end-of-day basis and does not reflect exposures that may arise on positions during the trading day. The use of historical data as a basis for determining the possible range of future outcomes may not always cover all possible scenarios, especially those of an exceptional nature. The VaR measure is dependent upon the Groups position and the volatility of market prices. The VaR of an unchanged position reduces if market price volatility declines and vice versa.
The Group uses VaR limits for total market risk and specific foreign exchange, interest rate, equity, credit spread and other price risks. The overall structure of VaR limits is subject to review and approval by ALCO. VaR limits are allocated to trading portfolios. VaR is measured at least daily and more regularly for more actively traded portfolios. Daily reports of utilisation of VaR limits are submitted to Group Market Risk and regular summaries are submitted to ALCO. Higher levels of market volatility across all asset classes continued during the year ended 31 March 2011. Uncertainly over the levels of borrowing by governments in the major economies and concerns over the performance of sovereign debt in eurozone increased market volatility. The largest impact on VaR was coming from the credit spread risk. The Group continuously managed the market risk exposure through limits during the year to mitigate the impact of the turmoil. A summary of the VaR position of the Groups trading portfolios at 31 March and during the year is as follows:
At 31 IFRS 7 .41 In millions of euro March Average Maximum Minimum
2011 Foreign currency risk Interest rate risk Credit spread risk Other price risk Covariance Overall 2010 Foreign currency risk Interest rate risk Credit spread risk Other price risk Covariance Overall
12.04 27 .41 19.07 3.28 (2.76) 59.04
10.04 22.05 16.97 3.01 (3.08) 48.99
15.06 39.48 19.52 4.02 72.53
7 .97 17 .53 15.66 2.42 44.01
9.28 20.43 6.08 3.32 (2.24) 36.87
8.40 18.05 5.11 2.89 (2.08) 32.37
12.05 26.52 8.83 4.56 47 .64
4.64 13.72 3.50 2.07 26.68
110
111
Reference
IFRS 7 .31

4. Financial risk management (continued) (d) Market risks (continued) Exposure to market risks trading portfolios (continued) The limitations of the VaR methodology are recognised by supplementing VaR limits with other position and sensitivity limit structures, including limits to address potential concentration risks within each trading portfolio. In addition, the Group uses a wide range of stress tests to model the financial impact of a variety of exceptional market scenarios, such as periods of prolonged market illiquidity, on individual trading portfolios and the Groups overall position. Exposure to interest rate risk non-trading portfolios The principal risk to which non-trading portfolios are exposed is the risk of loss from fluctuations in the future cash flows or fair values of financial instruments because of a change in market interest rates. Interest rate risk is managed principally through monitoring interest rate gaps and by having pre-approved limits for repricing bands. ALCO is the monitoring body for compliance with these limits and is assisted by Group central Treasury in its day-to-day monitoring activities. A summary of the Groups interest rate gap position on non-trading portfolios is as follows:
Repricing in: Carrying amount less than 3 months 3-6 months 6-12 months 1-5 more than years 5 years
In millions of euro IFRS 7 .34(a)
Note
31 March 2011 Cash and cash equivalents Loans and advances to banks Loans and advances to customers Investment securities Deposits from banks Deposits from customers Debt securities issued Subordinated liabilities Effect of derivatives held for risk management
18 21 22 23 28 29 30 31 20
2,972 5,572 59,084 5,807 73,435
2,972 4,903 22,162 1,177 31,214
669 7 ,760 1,292 9,721 (729) (1,584) (4,782) (7 ,095) 1,576 4,202 565 7 ,227 1,406 9,198 (682) (1,493) (4,158) (6,333) 1,240 4,105
3,259 1,361 4,620
22,256 1,292 23,548
3,647 685 4,332 (860) (860) 3,472 3,272 101 3,373 (827) (827) 2,546
(17 ,878) (17 ,149) (53,646) (39,715) (8,818) (5,143) (5,642) (85,984) (62,007) 3,620
(1,636) (10,711) (184) (3,491) (1,820) (14,202) 2,800 2,913 1,766 4,679 (5,196) 4,150 19,867 408 20,275
(12,549) (27 ,173)

IFRS 7 .34(a)
31 March 2010 Cash and cash equivalents Loans and advances to banks Loans and advances to customers Investment securities Deposits from banks Deposits from customers Debt securities issued Subordinated liabilities Effect of derivatives held for risk management
18 21 22 23 28 29 30 31 20
2,992 4,707 53,660 4,843 66,202
2,992 4,142 20,381 1,162 28,677
(15,430) (14,748) (48,904) (38,735) (8,040) (4,473) (4,985) (77 ,359) (57 ,956) 3,225
(1,065) (7 ,611) (178) (3,389) (1,243) (11,000) 3,436 (4,465) 4,810
(11,157) (26,054)
112
113
Reference
IFRS 7 .31

4. Financial risk management (continued) (d) Market risks (continued) Exposure to interest rate risk non-trading portfolios (continued) The management of interest rate risk against interest rate gap limits is supplemented by monitoring the sensitivity of the Groups financial assets and liabilities to various standard and non-standard interest rate scenarios. Standard scenarios that are considered on a monthly basis include a 100 basis point (bp) parallel fall or rise in all yield curves worldwide and a 50 bp rise or fall in the greater than 12-month portion of all yield curves. An analysis of the Groups sensitivity to an increase or decrease in market interest rates, assuming no asymmetrical movement in yield curves and a constant financial position, is as follows:1
100 bp parallel increase 100 bp parallel decrease 50 bp increase after 1 year 50 bp decrease after 1 year
IFRS 7 .40(a)
In millions of euro
Sensitivity of projected net interest income 2011 At 31 March Average for the year Maximum for the year Minimum for the year 2010 At 31 March Average for the year Maximum for the year Minimum for the year
(435) (425) (446) (394)
461 452 485 419
(222) (220) (236) (203)
230 226 242 209
(394) (383) (407) (372)
417 412 426 404
(202) (199) (206) (195)
209 207 211 203
Sensitivity of reported equity to interest rate movements 2011 At 31 March (778) Average for the year (765) Maximum for the year (792) Minimum for the year (753) 2010 At 31 March Average for the year Maximum for the year Minimum for the year
789 788 802 777
(390) (372) (396) (369)
398 381 401 365
(692) (688) (702) (679)
699 693 716 686
(379) (366) (382) (361)
383 371 391 369
Interest rate movements affect reported equity in the following ways:
retained earnings arising from increases or decreases in net interest income and the fair value changes reported in profit or loss; hedging reserves arising from increases or decreases in fair values of hedging instruments designated in qualifying cash flow hedge relationships; and prior to 1 April 2010 fair value reserves arising from increases or decreases in fair values of available-for-sale financial instruments reported directly in other comprehensive income.
Overall non-trading interest rate risk positions are managed by Group central Treasury, which uses investment securities, advances to banks, deposits from banks and derivative instruments to manage the overall position arising from the Groups non-trading activities. The use of derivatives to manage interest rate risk is described in note 20.
114
115
Reference
IFRS 7 .31

4. Financial risk management (continued) (d) Market risks (continued) Exposure to other market risks non-trading portfolios Equity price risk is subject to regular monitoring by Group Market Risk, but is not currently significant in relation to the overall results and financial position of the Group. The result of structural foreign exchange positions on the Groups net investments in foreign subsidiaries and branches, together with any related net investment hedges (see note 20), is recognised in equity. The Groups policy is only to hedge such exposures when not to do so would have a significant impact on the regulatory capital ratios of the Group and its banking subsidiaries. The result of this policy is that hedging generally only becomes necessary when the ratio of structural exposures in a particular currency to risk-weighted assets denominated in that currency diverges significantly from the capital ratio of the entity being considered. In addition to monitoring VaR in respect of foreign currency, the Group monitors any concentration risk in relation to any individual currency in regard to the translation of foreign currency transactions and monetary assets and liabilities into the functional currency of Group entities, and with regard to the translation of foreign operations into the presentation currency of the Group (after taking account of the impact of any qualifying net investment hedges). As at the reporting date net currency exposures representing more than 10 percent of the Groups equity are as follows:
IFRS 7 .34(c)
Foreign currency transactions

Functional currency of Group entities 2011 In millions Euro 2011 US$ 2010 Euro 2010 US$
Net foreign currency exposure: Pounds Sterling US dollar Euro Foreign operations
(715) 684 -
703
650 -
Net investments In millions 2011 2010
Functional currency of foreign operation: Pounds Sterling US dollar
984 680
782 -
(e) Operational risks Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Groups involvement with financial instruments, including processes, personnel, technology and infrastructure, and from external factors other than credit, market and liquidity risks such as those arising from legal and regulatory requirements and generally accepted standards of corporate behaviour. The Groups objective is to manage operational risk so as to balance the avoidance of financial losses and damage to the Groups reputation with overall cost effectiveness and to avoid control procedures that restrict initiative and creativity.
116

IAS 1.134-136
IAS 1 requires the disclosure of information on an entitys objectives, policies and processes for managing capital, and has specific requirements when the entitys capital is regulated. The example disclosures presented in these illustrative financial statements assume that the primary basis for capital management is regulatory capital requirements. However, other presentations are possible. Banks often will be subject to specific local regulatory capital requirements. The example disclosures are not designed to comply with any particular regulatory framework.
117
Reference
IFRS 7 .31

4. Financial risk management (continued) (e) Operational risks (continued) The primary responsibility for the development and implementation of controls to address operational risk is assigned to senior management within each business unit. This responsibility is supported by the development of overall Group standards for the management of operational risk in the following areas:
requirements for appropriate segregation of duties, including the independent authorisation of transactions; requirements for the reconciliation and monitoring of transactions; compliance with regulatory and other legal requirements; documentation of controls and procedures; requirements for the periodic assessment of operational risks faced, and the adequacy of controls and procedures to address the risks identified; requirements for the reporting of operational losses and proposed remedial action; development of contingency plans; training and professional development; ethical and business standards; and risk mitigation, including insurance where this is effective.
Compliance with Group standards is supported by a programme of periodic reviews undertaken by Internal Audit. The results of Internal Audit reviews are discussed with the management of the business unit to which they relate, with summaries submitted to the Audit Committee and senior management of the Group.
IAS 1.134 IAS 1.135(a)
(f) Capital management1 The Group manages its capital at Group level, considering both regulatory and economic capital. Regulatory capital The Groups lead regulator [Name of regulator] sets and monitors capital requirements for the Group as a whole. The parent company of the Bank and individual banking operations are directly supervised by their local regulators. The Group is required to comply with the provisions of the Basel II framework in respect of regulatory capital. The Group has been granted approval by its lead regulator [name of regulator] to adopt the advanced approaches to credit and operational risk management, except in respect of the credit portfolios of certain subsidiaries for which the standardised approach is being applied at present pending approval for use of the advanced approach from the lead regulator. The Group calculates requirements for market risk in its trading portfolios based upon the Groups VaR models.
IAS 1.135(a)(ii)
IAS 1.135(c)
118

IAS 1.135(c), (e)
When applicable, an entity discloses a description of changes in quantitative and qualitative data about its objectives, policies and processes for managing capital as compared to the prior period, and any instances of non-compliance with any externally imposed capital requirements to which it is subject. When an aggregate disclosure of capital requirements and how capital is managed would not provide useful information or distorts a financial statement users understanding of an entitys capital resources, the entity discloses separate information for each capital requirement to which the entity is subject.
IAS 1.136
119
Reference
IFRS 7 .31

4. Financial risk management (continued) (f) Capital management (continued) Regulatory capital (continued) The Groups regulatory capital is analysed into two tiers:
IAS 1.135(a)(i)
tier 1 capital, which includes ordinary share capital, share premium, perpetual bonds (which are classified as innovative tier 1 securities), retained earnings, translation reserve and non-controlling interests after deductions for goodwill and intangible assets, and other regulatory adjustments relating to items that are included in equity but are treated differently for capital adequacy purposes; and tier 2 capital, which includes qualifying subordinated liabilities, collective impairment allowances (limited to those credit portfolios where the standardised approach is used under Basel II) and the element of the fair value reserve relating to unrealised gains/losses on equity instruments measured at fair value through other comprehensive income. Prior to 1 April 2010 tier 2 capital also included unrealised gains/losses on equity instruments classified as available-for-sale.
Various limits are applied to elements of the capital base. The amount of innovative tier 1 securities cannot exceed 15 percent of total tier 1 capital; qualifying tier 2 capital cannot exceed tier 1 capital; and qualifying term subordinated loan capital may not exceed 50 percent of tier 1 capital. There also are restrictions on the amount of collective impairment allowances that may be included as part of tier 2 capital. Other deductions from capital include the carrying amounts of investments in subsidiaries that are not included in the regulatory consolidation, investments in the capital of banks and certain other regulatory items. Banking operations are categorised as either trading book or banking book, and risk-weighted assets are determined according to specified requirements that seek to reflect the varying levels of risk attached to assets and exposures not recognised in the statement of financial position. Basel II maintains a risk-weighted asset requirement in respect of operational risk.
IAS 1.135(a)(iii)
The Groups policy is to maintain a strong capital base so as to ensure investor, creditor and market confidence and to sustain future development of the business. The impact of the level of capital on shareholders return is also recognised and the Group recognises the need to maintain a balance between the higher returns that might be possible with greater gearing and the advantages and security afforded by a sound capital position. The Group and its individually regulated operations have complied with all externally imposed capital requirements throughout the period.1
IAS 1.135(d)
120
121
Reference
IFRS 7 .31
4. Financial risk management (continued) (f) Capital management (continued) Regulatory capital (continued) IAS 1.135(b), (c) The Groups regulatory capital position under Basel II at 31 March was as follows:
In millions of euro Note 2011 Basel II 2010 Basel II
Tier 1 capital Ordinary share capital Share premium Perpetual bonds Retained earnings Translation reserve Non-controlling interests Less intangible assets Less 50 percent of excess of expected losses over accounting impairment provisions on credit portfolios Less fair value losses, net of deferred tax, arising from the credit spreads on debt securities issued designated at fair value Other regulatory adjustments Tier 2 capital Fair value reserve for: Available-for-sale equity securities Investments in equity securities designated as at fair value through other comprehensive income Collective allowances for impairment where standardised approach is used Less 50 percent of excess of expected losses over accounting impairment provisions on credit portfolios Qualifying subordinated liabilities Total regulatory capital
34 34 34 34 34 34 25
1,759 466 500 3,673 68 156 (275) (408) (6) 9 5,942 5
1,756 439 500 2,948 72 128 (259) (352) (4) 6 5,234 73 20 (352) 2,079 1,820 7 ,054
22 31
25 (408) 2,749 2,371 8,313
Management uses regulatory capital ratios in order to monitor its capital base (see [name of document] for details), and these capital ratios remain the international standards for measuring capital adequacy. The lead regulators approach to such measurement based upon Basel II is primarily based on monitoring the relationship of the Capital Resources Requirement (measured as 8 percent of risk-weighted assets) to available capital resources. The lead regulator also sets individual capital guidance (ICG) for each bank and banking group in excess of the minimum Capital Resources Requirement. A key input to the ICG setting process is the Groups Internal Capital Assessment Process.
IAS 1.135(a)
Capital allocation The allocation of capital between specific operations and activities is, to a large extent, driven by optimisation of the return achieved on the capital allocated. The amount of capital allocated to each operation or activity is based primarily upon the regulatory capital, but in some cases the regulatory requirements do not reflect fully the varying degree of risk associated with different activities. In such cases the capital requirements may be flexed to reflect differing risk profiles, subject to the overall level of capital to support a particular operation or activity not falling below the minimum required for regulatory purposes. The process of allocating capital to specific operations and activities is undertaken independently of those responsible for the operation by Group Risk and Group Credit, and is subject to review by the Group Credit Committee or ALCO as appropriate.
122
123
Reference
IFRS 7 .31 IAS 1.135(a)

4. Financial risk management (continued) (f) Capital management (continued) Capital allocation (continued) Although maximisation of the return on risk-adjusted capital is the principal basis used in determining how capital is allocated within the Group to particular operations or activities, it is not the sole basis used for decision-making. Account also is taken of synergies with other operations and activities, the availability of management and other resources, and the fit of the activity with the Groups longer term strategic objectives. The Groups policies in respect of capital management and allocation are reviewed regularly by the board of directors. 5. Use of estimates and judgements Management discusses with the Group Audit Committee the development, selection and disclosure of the Groups critical accounting policies and their application, and assumptions made relating to major estimation uncertainties. These disclosures supplement the commentary on financial risk management (see note 4).
IAS 1.125
(a) Key sources of estimation uncertainty Allowances for credit losses Assets accounted for at amortised cost are evaluated for impairment on a basis described in accounting policy 3(j)(vii). The specific counterparty component of the total allowances for impairment applies to financial assets evaluated individually for impairment and is based upon managements best estimate of the present value of the cash flows that are expected to be received. In estimating these cash flows, management makes judgements about a counterpartys financial situation and the net realisable value of any underlying collateral. Each impaired asset is assessed on its merits, and the workout strategy and estimate of cash flows considered recoverable are independently approved by the Credit Risk function. Collectively assessed impairment allowances cover credit losses inherent in portfolios of loans and advances and investment securities measured at amortised cost (prior to 1 April 2010 also held-to-maturity investment securities) with similar credit risk characteristics when there is objective evidence to suggest that they contain impaired financial assets, but the individual impaired items cannot yet be identified. In assessing the need for collective loss allowances, management considers factors such as credit quality, portfolio size, concentrations and economic factors. In order to estimate the required allowance, assumptions are made to define the way inherent losses are modelled and to determine the required input parameters, based on historical experience and current economic conditions. The accuracy of the allowances depends on the estimates of future cash flows for specific counterparty allowances and the model assumptions and parameters used in determining collective allowances. Determining fair values The determination of fair value for financial assets and liabilities for which there is no observable market price requires the use of valuation techniques as described in accounting policy 3(j)(vi). For financial instruments that trade infrequently and have little price transparency, fair value is less objective, and requires varying degrees of judgement depending on liquidity, concentration, uncertainty of market factors, pricing assumptions and other risks affecting the specific instrument. See also Valuation of financial instruments below.
124

IFRS 7 , .27 27A
IFRS 7 requires disclosures relating to fair value measurements using a three-level fair value hierarchy that reflects the significance of the inputs used in measuring fair values and contains the following three levels:
Level 1 fair value measurements using quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 fair value measurements using inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and Level 3 fair value measurements using inputs for the asset or liability that are not based on observable market data (i.e. unobservable inputs).
125
Reference

5. Use of estimates and judgements (continued) (b) Critical accounting judgements in applying the Groups accounting policies Critical accounting judgements made in applying the Groups accounting policies include: Valuation of financial instruments The Groups accounting policy on fair value measurements is discussed in accounting policy 3(j)(vi).
IAS 1.122
IFRS 7 .27A
The Group measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements.1

Level 1: Quoted market price (unadjusted) in an active market for an identical instrument. Level 2: Valuation techniques based on observable inputs, either directly (i.e. as prices) or indirectly (i.e. derived from prices). This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for identical or similar instruments in markets that are considered less than active; or other valuation techniques where all significant inputs are directly or indirectly observable from market data. Level 3: Valuation techniques using significant unobservable inputs. This category includes all instruments where the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instruments valuation. This category includes instruments that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instruments.
IFRS 7 .27
Fair values of financial assets and financial liabilities that are traded in active markets are based on quoted market prices or dealer price quotations. For all other financial instruments the Group determines fair values using valuation techniques. Valuation techniques include net present value and discounted cash flow models, comparison to similar instruments for which market observable prices exist, Black-Scholes and polynomial option pricing models and other valuation models. Assumptions and inputs used in valuation techniques include risk-free and benchmark interest rates, credit spreads and other premia used in estimating discount rates, bond and equity prices, foreign currency exchange rates, equity and equity index prices and expected price volatilities and correlations. The objective of valuation techniques is to arrive at a fair value determination that reflects the price of the financial instrument at the reporting date, that would have been determined by market participants acting at arms length. The Group uses widely recognised valuation models for determining the fair value of common and more simple financial instruments, like interest rate and currency swaps that use only observable market data and require little management judgement and estimation. Observable prices and model inputs are usually available in the market for listed debt and equity securities, exchange traded derivatives and simple over the counter derivatives like interest rate swaps. Availability of observable market prices and model inputs reduces the need for management judgement and estimation and also reduces the uncertainty associated with determination of fair values. Availability of observable market prices and inputs varies depending on the products and markets and is prone to changes based on specific events and general conditions in the financial markets.
126
Note Reference Explanatory note 1. The IASB Expert Advisory Panel report (the Panel report) summarises the discussions of the Panel and provides useful information and educational guidance for measuring and disclosing fair values and for meeting the requirements of IFRSs. It does not establish new requirements for entities applying IFRSs. The Panel report states that it would be helpful for an entity to consider disclosure of the control environment and that a description of the entitys governance and controls over the valuation processes, particularly as it applies to identified classes of financial instruments for which enhanced fair value disclosures are provided, i.e. instruments of particular interest to users, provides useful information about the quality of reported fair values and allows users to ascertain why management is satisfied that the values reported are representationally faithful.
127
Reference

5. Use of estimates and judgements (continued) (b) Critical accounting judgements in applying the Groups accounting policies (continued) Valuation of financial instruments (continued) For more complex instruments, the Group uses proprietary valuation models, which usually are developed from recognised valuation models. Some or all of the significant inputs into these models may not be observable in the market, and are derived from market prices or rates or are estimated based on assumptions. Example of instruments involving significant unobservable inputs include certain over the counter structured derivatives, certain loans and securities for which there is no active market and retained interests in securitisations. Valuation models that employ significant unobservable inputs require a higher degree of management judgement and estimation in the determination of fair value. Management judgement and estimation are usually required for selection of the appropriate valuation model to be used, determination of expected future cash flows on the financial instrument being valued, determination of probability of counterparty default and prepayments and selection of appropriate discount rates. The Group has an established control framework1 with respect to the measurement of fair values. This framework includes a Product Control function, which is independent of front office management and reports to the Chief Financial Officer, and which has overall responsibility for independently verifying the results of trading and investment operations and all significant fair value measurements. Specific controls include: verification of observable pricing inputs and reperformance of model valuations; a review and approval process for new models and changes to models involving both Product Control and Group Market Risk; calibration and back testing of models against observed market transactions; analysis and investigation of significant daily valuation movements; review of significant unobservable inputs and valuation adjustments by a committee of senior Product Control and Group Market Risk personnel; and reporting of significant valuation issues to the Group Audit Committee.
IAS 1.122
128

IFRS 7 .27A
The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustments based on unobservable inputs, then that measurement is a Level 3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability. In instances where multiple unobservable inputs are used, in our view the unobservable inputs should be considered in total for the purpose of determining their significance. This issue is discussed in our publication Insights into IFRS (5.6.300.60). For fair value measurements recognised in the statement of financial position, an entity discloses any significant transfers between Level 1 and Level 2 of the fair value hierarchy and the reasons for those transfers. Transfers into each level should be disclosed and discussed separately from transfers out of each level. For this purpose, significance is judged with respect to profit or loss, and total assets or total liabilities.
2.
IFRS 7 .27B(b)
129
Reference

5. Use of estimates and judgements (continued) (b) Critical accounting judgements in applying the Groups accounting policies (continued) Valuation of financial instruments (continued) The table below analyses financial instruments measured at fair value at the end of the reporting period, by the level in the fair value hierarchy into which the fair value measurement is categorised:1
In millions of euro Note Level 1 Level 2 Level 3 Total
IAS 1.122 IFRS 7 .27B(a)
31 March 2011 Trading assets Derivative assets held for risk management Loans and advances to customers Investment securities
19 20 22 23
10,355 26 389 2,250 13,020
5,627 832 1,719 1,886 10,064 145 787 481 1,413
680 1,878 709 3,267 9 9
16,662 858 3,986 4,845 26,351 826 828 2,409 4,063
Trading liabilities Derivative liabilities held for risk management Debt securities issued
19 20 30
672 41 1,928 2,641
31 March 2010 Trading assets Derivative assets held for risk management Loans and advances to customers Investment securities
19 20 22 23
10,805 36 346 2,586 13,773
4,231 690 1,340 2,102 8,363 123 757 722 1,602
732 1,459 780 2,971 9 9
15,768 726 3,145 5,468 25,107 852 789 2,208 3,849
Trading liabilities Derivative liabilities held for risk management Debt securities issued
19 20 30
720 32 1,486 2,238
IFRS 7 .27B(b)
During the current year, due to changes in market conditions for certain investment securities, quoted prices in active markets were no longer available for these securities. However, there was sufficient information available to measure fair values of these securities based on observable market inputs. Hence, these securities, with a carrying amount of 369 million, were transferred from Level 1 to Level 2 of the fair value hierarchy.2
130

IFRS 7 .27B(c)
For fair value measurements in Level 3 of the fair value hierarchy, an entity discloses a reconciliation from the beginning balances to the ending balances, disclosing separately changes during the period attributable to the following:
total gains or losses for the year recognised in profit or loss, and a description of where they are presented in the statement of comprehensive income or the separate income statement (if presented); total gains or losses recognised in other comprehensive income; purchases, sales, issues and settlements (each type of movement disclosed separately); and transfers into or out of Level 3, e.g. transfers attributable to changes in the observability of market data, and the reasons for those transfers. For significant transfers, transfers into Level 3 should be disclosed and discussed separately from transfers out of Level 3.
2.
IFRS 7 .27B(d)
For fair value measurements in Level 3 of the fair value hierarchy, an entity discloses the amount of total gains or losses for the year recognised in profit or loss relating to those assets and liabilities held at the end of the reporting period and a description of where those gains or losses are presented in the statement of comprehensive income or the separate income statement (if presented).
131
Reference
IAS 1.122 IFRS 7 .27B(c), IG13B

5. Use of estimates and judgements (continued) (b) Critical accounting judgements in applying the Groups accounting policies (continued) Valuation of financial instruments (continued) The following table shows a reconciliation from the beginning balances to the ending balances for fair value measurements in Level 3 of the fair value hierarchy:1 2011
In millions of euro Loans and Trading advances to assets customers Investment securities Trading liabilities
Total
IFRS 7 .27B(c) IFRS 7 .27B(c)(i) IFRS 7 .27B(c)(ii) IFRS 7 .27B(c)(iii) IFRS 7 .27B(c)(iii) IFRS 7 .27B(c)(iii) IFRS 7 .27B(c)(iv) IFRS 7 .27B(c)(iv) IFRS 7 .27B(c)
Balance at 1 April 2010 Total gains or losses: in profit or loss in other comprehensive income Purchases Issues Settlements Transfers into Level 3 Transfers out of Level 3 Balance at 31 March 2011
732 12 41 (51) 61 (115) 680
119 (4) 44 159
670 7 2 (6) 43 (117) 599
(9) 5 (5) (9)
1,512 20 2 85 (5) (57) 104 (232) 1,429
Total gains or losses included in profit or loss for the year in the above table are presented in the statement of comprehensive income as follows:

2011
In millions of euro
Loans and Trading advances to assets customers
Investment securities
Trading liabilities
Total
IFRS 7 .27B(c)(i)
Total gains or losses included in profit or loss for the year: Net trading income Net income from other financial instruments carried at fair value Total gains or losses for the year included in profit or loss for assets and liabilities held at the end of the reporting period:2 Net trading income Net income from other financial instruments carried at fair value
12 -
(4)
5 -
17 3
IFRS 7 .27B(d)
9 -
(2)
3 -
12 5
132
Note Reference Explanatory note 1. The Panel report states that providing enhanced and detailed disclosures about the fair value of financial instruments that are of particular interest to the users of financial statements will help the users understand the techniques used and judgements made in measuring fair value. There is a variety of factors to consider in identifying instruments that could be the focus of enhanced disclosure and it might be helpful to include an explanation of why the entity considers these instruments to be of particular interest to users and the criteria it has applied to identify instruments for which additional disclosure would be useful. These instruments of particular interest will change over time as market conditions change and are likely to include those that are the focus of internal management reporting and are receiving external market interest. As the internal and external focus on particular financial instruments changes over time, adjusting the level of detail of disclosure about different financial instruments to reflect this provides users with an appropriate level of information necessary to understand better the fair value measurements that are of most interest. For example, if the market for a particular type of instrument has become extremely volatile and there have been large increases in bid-offer spreads, or if there has been a significant decrease in liquidity, then the level of risk associated with the instrument and the difficulty in valuing the instrument are likely to have increased. Providing more detailed or enhanced disclosures about this type of instrument is likely to help users. The Panel report states that for instruments of particular interest to users, a detailed description of the terms of the instruments gives a better understanding of what the instruments are and facilitates comparability between entities. In addition to numerical disclosure of the carrying amount of the instruments and the changes in their carrying amounts, numerical disclosure of other important terms of an instrument, for example the notional amount of a debt instrument, might give users a better understanding of the fair value measurement. If the cash flows of an instrument are generated from or secured by specific underlying assets, then more detailed information about factors that might affect the value of those underlying assets, such as the maturity, vintage or location of the assets, might help users to assess better the fair value measurement of the asset.
2.
133
Reference
IAS 1.122

5. Use of estimates and judgements (continued) (b) Critical accounting judgements in applying the Groups accounting policies (continued) Valuation of financial instruments (continued) 2010
In millions of euro Loans and Trading advances to assets customers Investment securities Trading liabilities
Total
IFRS 7 .27B(c) IFRS 7 .27B(c) IFRS 7 .27B(c)(i) IFRS 7 .27B(c)(ii) IFRS 7 .27B(c)(iii) IFRS 7 .27B(c)(iii) IFRS 7 .27B(c)(iii) IFRS 7 .27B(c)(iv) IFRS 7 .27B(c)(iv) IFRS 7 .27B(c)
Balance at 1 April 2009 Total gains or losses: in profit or loss in other comprehensive income Purchases Issues Settlements Transfers into Level 3 Transfers out of Level 3 Balance at 31 March 2010
282 100 86 (15) 335 (56) 732
119 2 (2) 119
110 (50) (9) 15 (32) 765 (19) 780
(4) (4) (1) (9)
507 48 (9) 101 (1) (49) 1,100 (75) 1,622
Total gains or losses included in profit or loss for the year in the above table are presented in the statement of comprehensive income as follows:

2010
In millions of euro
Loans and Trading advances to assets customers
Investment securities
Trading liabilities
Total
IFRS 7 .27B(c)(i)
Total gains or losses included in profit or loss for the year: Net trading income Net income from other financial instruments carried at fair value Total gains or losses for the year included in profit or loss for assets and liabilities held at the end of the reporting period: Net trading income Net income from other financial instruments carried at fair value
100 -
(59)
(4) -
96 (57)
IFRS 7 .27B(d)
88 -
(56)
(2) -
86 (55)
IFRS 7 .27B(c)(iv)
During the years ended 31 March 2011 and 31 March 2010, certain trading assets and investment securities were transferred out of Level 3 of the fair value hierarchy when significant inputs used in their fair value measurements such as certain credit spreads and long-date option volatilities, which were previously unobservable became observable. During the year ended 31 March 2010 there was dislocation in asset-backed securities markets. For many securities this has meant greatly reduced or nil trading volumes and severe falls in transaction prices and quotes. As a result certain securities that were previously valued using a quoted market price in an active market during the year ended 31 March 2010 had to be valued using a valuation technique that incorporates significant unobservable data. During the current financial year, some low trading volumes returned but the market recovery has not resulted in sufficient trading volume to establish an active market and so the Group continued to determine fair value for those securities using valuation techniques. These securities are backed primarily by static pools of residential mortgages and enjoy a senior claim on cash flows. The principal amounts of asset-backed securities valued using significant unobservable inputs at 31 March 2011 was 269 million (2010: 422 million) for trading securities and 313 million for investment securities (2010: 502 million).1, 2
134
Note Reference Explanatory note 1. The Panel report states that it would be helpful for an entity to consider providing sufficiently detailed disclosure about the unobservable inputs used and how these have been estimated. For assumptions made and inputs applied in the valuation technique that are unobservable or difficult to estimate, more detailed and transparent disclosure allows users to form educated judgements as to the reasonableness of the valuation methodologies and assumptions applied. The Panel report also states that it would be helpful for an entity to consider providing an understandable and suitably detailed description of the valuation techniques used in measuring fair values, particularly those valuation techniques used to measure the fair value of instruments that are of particular interest to users. In disclosing this information an entity might consider providing a description of the risks or shortcomings (if any) of the selected valuation techniques and whether there have been any changes in the valuation techniques used and the reasons for these changes. An entity may also consider providing disclosure of the facts and circumstances that lead to the determination that the market for a particular instrument is active or inactive. 2.
IFRS 7 .27B(e)
For fair value measurements in Level 3, if changing one or more of the inputs to reasonably possible alternative assumptions would change fair value significantly, then the entity states that fact and discloses, by class of financial instruments, the effect of those changes. For this purpose, significance is judged with respect to profit or loss, and total assets or total liabilities, or, when changes in fair value are recognised in other comprehensive income, total equity. In our view, reasonably possible alternative assumptions are those that could reasonably have been included in the valuation model at the reporting date based on the circumstances at the reporting date. This issue is discussed in our publication Insights into IFRS (5.6.300.190).
135
Reference

5. Use of estimates and judgements (continued) (b) Critical accounting judgements in applying the Groups accounting policies (continued) Valuation of financial instruments (continued) The Groups valuation methodology for valuing these asset-backed securities uses a discounted cash flow methodology that takes into account original underwriting criteria, borrower attributes (such as age and credit scores), loan-to-value ratios and expected house price movements and unemployment rates. These features are used to estimate expected cash flows, which are then allocated using the waterfall applicable to the security and discounted at a risk-adjusted rate.1 The discounted cash flow technique is often used by market participants to price asset-backed securities. However, this technique is subject to inherent limitations, such as estimation of the appropriate risk adjusted discount rate, and different assumptions and inputs would yield different results. Model inputs and values are calibrated against historical data and published forecasts and, where possible, against current or recent observed transactions in different mortgage-backed securities and broker quotes. This calibration process is inherently subjective as different input sources may imply different levels of expected losses and discount rates; also, adjustment is required for the differing features of different securities. The calibration process yields ranges of possible inputs and estimates of fair value, and management judgement is required to select the most appropriate point in the range.
IAS 1.122
IFRS 7 .27B(e)
Although the Group believes that its estimates of fair value are appropriate, the use of different methodologies or assumptions could lead to different measurements of fair value. For fair value measurements in Level 3, changing one or more of the assumptions used to reasonably possible alternative assumptions would have the following effects:2
Effect on Effect on profit or loss In millions of euro Favourable (Unfavourable) other comprehensive income Favourable (Unfavourable)
31 March 2011 Asset-backed securities trading Asset-backed securities investment OTC structured derivatives trading assets and liabilities Other
23 17 30 8 78
(25) (22) (12) (8) (67)
5 5
(3) (3)
31 March 2010 Asset-backed securities trading Asset-backed securities investment OTC structured derivatives trading assets and liabilities Other
38 28 36 12 114
(41) (42) (16) (13) (112)
20 20
(1) (1)
136

IFRS 7 .27B(e)
For fair value measurements in Level 3, if changing one or more of the inputs to reasonably possible alternative assumptions would change fair value significantly, then the entity states that fact and discloses, by class of financial instruments, the effect of those changes. The entity discloses how the effect of a change to a reasonably possible alternative assumption was calculated. In disclosing the effect of reasonably possible alternative unobservable inputs, an entity might consider explaining why the assumptions used in fair value measurement were selected rather than the reasonably possible alternative(s).
2.
The Panel report states that providing enhanced and detailed disclosures about the fair value of financial instruments that are of particular interest to the users of financial statements will help the users understand the techniques used and judgements made in measuring fair value. There is a variety of factors to consider in identifying instruments that could be the focus of enhanced disclosure and it might be helpful to include an explanation of why the entity considers these instruments to be of particular interest to users and the criteria it has applied to identify instruments for which additional disclosure would be useful. These instruments of particular interest will change over time as market conditions change and are likely to include those that are the focus of internal management reporting and are receiving external market interest. As the internal and external focus on particular financial instruments changes over time, adjusting the level of detail of disclosure about different financial instruments to reflect this provides users with an appropriate level of information necessary to understand better the fair value measurements that are of most interest. For example, if the market for a particular type of instrument has become extremely volatile and there have been large increases in bid-offer spreads, or if there has been a significant decrease in liquidity, then the level of risk associated with the instrument and the difficulty in valuing the instrument are likely to have increased. Providing more detailed or enhanced disclosures about this type of instrument is likely to help users. The Panel report states that it would be helpful for an entity to consider providing sufficiently detailed disclosure about the unobservable inputs used and how these have been estimated. For assumptions made and inputs applied in the valuation technique that are unobservable or difficult to estimate, more detailed and transparent disclosure allows users to form educated judgements as to the reasonableness of the valuation methodologies and assumptions applied. The Panel report also states that it would be helpful for an entity to consider providing an understandable and suitably detailed description of the valuation techniques used in measuring fair values, particularly those valuation techniques used to measure the fair value of instruments that are of particular interest to users. In disclosing this information an entity might consider providing a description of the risks or shortcomings (if any) of the selected valuation techniques and whether there have been any changes in the valuation techniques used and the reasons for these changes. An entity may also consider providing disclosure of the facts and circumstances that lead to the determination that the market for a particular instrument is active or inactive.
3.
4.
The Panel report states that entities could make the disclosures relating to the reconciliation of movements in the fair values of instruments measured using significant unobservable inputs more meaningful by providing detail about the actual value changes caused by unobservable inputs. This could be achieved by disclosing those movements that are economically hedged by movement in instruments in other levels of the hierarchy or by separating the movements into those related to observable and unobservable inputs, if this information can be determined.
137
Reference

5. Use of estimates and judgements (continued) (b) Critical accounting judgements in applying the Groups accounting policies (continued) Valuation of financial instruments (continued) The favourable and unfavourable effects of using reasonably possible alternative assumptions have been calculated by recalibrating the model values using expected losses and risk-adjusted discount rates based on averages of the upper and lower quartiles respectively of the Groups ranges of possible estimates.1 Key inputs and assumptions used in the models at 31 March 2011 include expected declines in house prices in the short-term and increases in the longterm, with the compound implied rate indicating an increase of 5 percent (with reasonably possible alternative assumptions of 1 percent and 9 percent) (2010: decline of 10 percent, 7 percent and 16 percent respectively) and an average discount rate of 3 percent above LIBOR (with reasonably possible alternative assumptions of 2 percent and 5 percent) (2010: 3 percent, 2 percent and 5 percent respectively above LIBOR). As part of its trading activities the Group enters into OTC structured derivatives, primarily options indexed to equity prices, foreign exchange rates and interest rates, with customers and other banks. Some of these instruments are valued using models with significant unobservable inputs,2 principally expected long-term volatilities and expected correlations between different asset prices or foreign currency exchange rates.3 These inputs are estimated based on extrapolation from observable shorter-term volatilities, recent transaction prices, quotes from other market participants, data from consensus pricing services and historical data.
IAS 1.122 IFRS 7 .27B(e)
IFRS 7 .27B(e)
The favourable and unfavourable effects of using reasonably possible alternative assumptions have been calculated by adjusting unobservable model inputs to the averages of the upper and lower quartile of consensus pricing data or by two standard deviations in the level of such inputs based on the last two years historical daily data.1 The most significant unobservable inputs relate to correlations of changes in prices between different equity indices; the weighted average of the correlations used in the models at 31 March 2011 is 0.47 with reasonably possible alternative assumptions of 0.30 and 0.58 (2010: 0.40, 0.28 and 0.39 respectively). In determining fair values, the Group does not use averages of reasonably possible alternative inputs as averages may not represent a price at which a transaction would take place between market participants on the measurement date. When alternative assumptions are available within a wide range, judgements exercised in selecting the most appropriate point in the range include evaluation of the quality of the sources of inputs, for example, the experience and expertise of the brokers providing different quotes within a range, giving greater weight to a quote from the original broker of the instrument who has the most detailed information about the instrument, and the availability of corroborating evidence in respect of some inputs within the range.2 The Groups reporting systems and the nature of the instruments and the valuation models do not allow it to analyse accurately the total annual amounts of gains/losses reported above that are attributable to observable and unobservable inputs. However, the gains on asset-backed securities for the year ended 31 March 2011 are principally dependent on the unobservable expected loss and discount rate assumptions described above.4
138
Note Reference Explanatory note 1. The Panel report states that entities could make the disclosures relating to the reconciliation of movements in the fair values of instruments measured using significant unobservable inputs more meaningful by providing detail about the actual value changes caused by unobservable inputs. This could be achieved by disclosing those movements that are economically hedged by movement in instruments in other levels of the hierarchy or by separating the movements into those related to observable and unobservable inputs, if this information can be determined.
139
Reference

5. Use of estimates and judgements (continued) (b) Critical accounting judgements in applying the Groups accounting policies (continued) inancial asset and liability classification F usiness model Applicable from 1 April 2010 B n making an assessment1 whether a business models objective is to hold assets in order I o collect contractual cash flows, the Group considers at which level of its business activities t uch assessment should be made. Generally, a business model is a matter of fact which can s e evidenced by the way business is managed and the information provided to management. b owever, in some circumstances it may not be clear whether a particular activity involves one H usiness model with some infrequent asset sales or whether the anticipated sales indicate b hat there are two different business models. t
IAS 1.122
n determining whether its business model for managing financial assets is to hold assets in I rder to collect contractual cash flows the Group considers: o managements stated policies and objectives for the portfolio and the operation of those policies in practice; how management evaluates the performance of the portfolio; whether managements strategy focuses on earning contractual interest revenues; the degree of frequency of any expected asset sales; the reason for any asset sales; and whether assets that are sold are held for an extended period of time relative to their contractual maturity or are sold shortly after acquisition or an extended time before maturity. In particular, the Group exercises judgement to determine the objective of the business model for portfolios which are held for liquidity purposes. Certain debt securities are held by the Group Central Treasury in a separate portfolio for long term yield and as a liquidity reserve. The securities may be sold in order to meet unexpected liquidity shortfalls but such sales are not anticipated to be more than infrequent. The Group considers that these securities are held within a business model whose objective is to hold assets to collect the contractual cash flows. Certain other debt securities are held by the Group Central Treasury in separate portfolios in order to manage short-term liquidity. Sales from this portfolio are frequently made to meet ongoing business needs. The Group determines that these securities are not held within a business model whose objective is to held assets in order to collect contractual cash flows. When a business model involves transfers of contractual rights to cash flows from financial assets to third parties and the transferred assets are not derecognised, the Group reviews the arrangements to determine their impact on assessing the objective of the business model. In making the assessment the Group considers whether, under the arrangements, the Group will continue to receive cash flows from the assets, either directly from the issuer, or indirectly from the transferee, including whether it will repurchase the assets from the transferee. ontractual cash flows of financial assets Applicable from 1 April 2010 C The Group exercises judgement in determining whether the contractual terms of financial assets it originates or acquires give rise on specific dates to cash flows that are solely payments of principal and interest on the principal outstanding and so may qualify for amortised cost measurement. In making the assessment the Group considers all contractual terms, including any prepayment terms or provisions to extend the maturity of the assets, terms that change the amount and timing of cash flows and whether the contractual terms contain leverage. For financial assets in respect of which the Groups claims are limited to specific assets of the debtor (non-recourse assets) the Group assess whether the contractual terms of such financial assets limit the cash flows in a manner inconsistent with those payments representing principal and interest. Where the Group invests in contractually linked instruments (tranches) the Group exercises judgement to determine whether the exposure to credit risk in the acquired tranche is equal to or lower than the exposure to credit risk of the underlying pool of financial instruments and so the acquired tranche may qualify for amortised cost measurement.
140
141
Reference

5. Use of estimates and judgements (continued) (b) Critical accounting judgements in applying the Groups accounting policies (continued) Financial asset and liability classification (continued) Other aspects of classification The Groups accounting policies provide scope for assets and liabilities to be designated at inception into different accounting categories in certain circumstances:
IAS 1.122
In classifying financial assets or liabilities as trading, the Group has determined that it meets the description of trading assets and liabilities set out in accounting policy 3(l). In designating financial assets or liabilities at fair value through profit or loss, the Group has determined that it has met one of the criteria for this designation set out in accounting policy 3(j)(ii). In classifying financial assets as held-to-maturity, the Group has determined that it has both the positive intention and ability to hold the assets until their maturity date as required by accounting policy 3(o)(i) (applicable prior to 1 April 2010).
Details of the Groups classification of financial assets and liabilities are given in note 7 . Qualifying hedge relationships In designating financial instruments in qualifying hedge relationships, the Group has determined that it expects the hedges to be highly effective over the period of the hedging relationship. In accounting for derivatives as cash flow hedges, the Group has determined that the hedged cash flow exposure relates to highly probable future cash flows. Securitisations In applying its policies on securitised financial assets, the Group has considered both the degree of transfer of risks and rewards on assets transferred to another entity and the degree of control exercised by the Group over the other entity.
When the Group, in substance, controls the entity to which financial assets have been transferred, the entity is included in these consolidated financial statements and the transferred assets are recognised in the Groups statement of financial position. When the Group transfers financial assets to an unconsolidated entity and it retains substantially all of the risk and rewards relating to the transferred assets, the transferred assets are recognised in the Groups statement of financial position. When the Group transfers substantially all the risks and rewards relating to the transferred financial assets to an unconsolidated entity, the assets are derecognised from the Groups statement of financial position. When the Group neither transfers nor retains substantially all the risks and rewards relating to a transferred financial asset and it retains control of the transferred asset, the Group continues to recognise the transferred financial asset to the extent of its continuing involvement in that transferred financial asset.
Details of the Groups securitisation activities are given in note 36. Impairment of investment in equity securities Applicable prior to 1 April 2010 Investments in equity securities were evaluated for impairment on the basis described in accounting policy 3(j)(vii). For an investment in an equity security, a significant or prolonged decline in its fair value below its cost was objective evidence of impairment. In this respect, the Group regarded a decline in fair value in excess of 20 percent to be significant and a decline in a quoted market price that persisted for nine months or longer to be prolonged.
142
143
Reference
6. Operating segments IFRS 8.20-22, A The Group has five reportable segments, as described below, which are the Groups strategic divisions. The strategic divisions offer different products and services, and are managed separately based on the Groups management and internal reporting structure. For each of the strategic divisions, the Group Management Committee reviews internal management reports on at least a quarterly basis. The following summary describes the operations in each of the Groups reportable segments.
Investment Banking Corporate Banking
Includes the Groups trading and corporate finance activities Includes loans, deposits and other transactions and balances with corporate customers Includes loans, deposits and other transactions and balances with retail customers Operates the Groups funds management activities Undertakes the Groups funding and centralised risk management activities through borrowings, issues of debt securities, use of derivatives for risk management purposes and investing in liquid assets such as short-term placements and corporate and government debt securities.
Retail Banking
Asset Management Group central Treasury
IFRS 8.20, 27(a)
Information regarding the results of each reportable segment is included below. Performance is measured based on segment profit before tax, as included in the internal management reports that are reviewed by the Group Management Committee. Segment profit is used to measure performance as management believes that such information is the most relevant in evaluating the results of certain segments relative to other entities that operate within these industries. Inter-segment pricing is determined on an arms length basis.
144

IFRS 8.IG5
Because the Groups reportable segments are based on different products and services, no additional disclosures of revenue information about products and services are required, i.e. the disclosures required by paragraph 32 of IFRS 8 Operating Segments with regard to revenue from external customers for each product or service, or each group of similar products and services, are provided already in the overall table of information about reportable segments. An entity presents interest revenue separately from interest expense for each reportable segment unless a majority of the segments revenues are from interest and the Chief Operating Decision Maker (CODM) relies primarily on net interest revenue to assess the performance of the segment and to make decisions about resources to be allocated to the segment. In that situation, an entity may report that segments interest revenue net of interest expense, and disclose that it has done so. The Improvements to IFRSs 2009 amended IFRS 8 so that a measure of segment assets is disclosed only if the amounts are regularly provided to the CODM, consistent with the equivalent requirement for the measure of segment liabilities.
2.
IFRS 8.23
3.
IFRS 8.23
Reference

Investment Banking Corporate Banking Retail Asset Banking Management Central Treasury
6. Operating segments (continued) Information about operating segments

Total
In millions of euro
IFRS 8.23(a)
IFRS 8.23(c),(d)
IFRS 8.23(f)
IFRS 8.23(f)
169 1,253
1,779 234 -
612 202 -
70 -
(496) (57)
1,895 675 1,196
IFRS 8.23(f)
IFRS 8.23(f)
550 63
55
123
(378) 61
172 302
IFRS 8.23(b)
2011 External revenue:1 Net interest income2 Net fee and commission income Net trading income Net income from other financial instruments at fair value through profit or loss Other revenue Net gain/(loss) arising from derecognition of financial assets measured at amortised cost Intersegment revenue (3) 2,032 2,062 (6) 658 1,595 70
1,182 312
(9) 1,840 6,071
IFRS 8.32
Total segment revenue
IFRS 8.23(i)
Other material non-cash items: Impairment losses on financial assets 47 24,968 7 ,026
206 223 39,248 11,453
117 448 20,908 38,199
20 362 206
7 106 10,342 32,980
330 844 95,828 89,864
IFRS 8.21(b)
Reportable segment profit before tax
IFRS 8.21(b)
Reportable segment assets3
IFRS 8.21(b)
Reportable segment liabilities
145
146
Reference

Investment Banking Corporate Banking Retail Asset Banking Management Central Treasury
6. Operating segments (continued) Information about operating segments (continued)

Total
In millions of euro
IFRS 8.23(a)
IFRS 8.23(c),(d)
IFRS 8.23(f)
IFRS 8.23(f)
156 919
1,679 227 -
587 176 -
65 -
(424) (7)
1,842 624 912
IFRS 8.23(f)
IFRS 8.23(f))
IFRS 8.23(b)
2010 External revenue: Net interest income Net fee and commission income Net trading income Net income from other financial instruments at fair value through profit or loss Other revenue Intersegment revenue 240 34 1,349 1,948 1,464 42 111 590 65
(159) 184 914 508
81 371 1,504 5,334
IFRS 8.32
Total segment revenue
IFRS 8.23(i)
Other material non-cash items: Impairment losses on financial assets 105 (241) 22,641 6,052
139 332 35,558 10,703
86 282 19,049 34,086
22 332 204
4 277 9,165 29,993
334 672 86,745 81,038
IFRS 8.21(b)
Reportable segment profit before tax
IFRS 8.21(b)
Reportable segment assets
IFRS 8.21(b)
Reportable segment liabilities
147
148
149
Reference

6. Operating segments (continued) Reconciliations of reportable segment revenues, profit or loss and assets and liabilities
IFRS 8.28(a)
Revenues Total revenue for reportable segments Unallocated amounts Elimination of inter-segment revenue Consolidated revenue
6,071 5 (1,845) 4,231
5,334 8 (1,512) 3,830
IFRS 8.28(b)
Profit or loss Total profit or loss for reportable segments Unallocated amounts Consolidated profit before tax
844 5 849
672 672
IFRS 8.28(c)
Assets Total assets for reportable segments Other unallocated amounts Consolidated total assets
95,828 1,371 97 ,199
86,745 1,071 87 ,816
IFRS 8.28(d)
Liabilities Total liabilities for reportable segments Other unallocated amounts Consolidated total liabilities
89,864 797 90,661
81,038 809 81,847
150

IFRS 8.34
If revenues from transactions with a single external customer amount to 10 percent or more of an entitys revenues, then the entity discloses that fact, the total amount of revenues from such a customer, and the identity of the segment or segments reporting the revenues. An entity reports the following geographical information, unless the necessary information is not available and the cost to develop it would be excessive.
2.
IFRS 8.33
Revenues from external customers, attributed to the entitys country of domicile and attributed to all foreign countries in total from which the entity derives revenues. If revenues from external customers attributed to an individual foreign country are material, then those revenues are disclosed separately. An entity discloses the basis for attributing revenues from external customers to individual countries. Non-current assets other than financial instruments, deferred tax assets, post-employment benefit assets, and rights arising under insurance contracts, which are located in the entitys country of domicile and located in all foreign countries in total in which the entity holds assets. If assets in an individual foreign country are material, then those assets are disclosed separately. The amounts reported are based on the financial information that is used to produce the entitys financial statements. If the necessary information is not available and the cost to develop it would be excessive, then that fact is disclosed. An entity may provide, in addition to the information required by paragraph 33 of IFRS 8, subtotals of geographical information about groups of countries.
Reference
6. Operating segments (continued)1 Geographical areas 2 In presenting information on the basis of geographical areas, revenue is based on the geographical location of customers and assets are based on the geographical location of the assets.
Geographical information
[Country of domicile] America Europe Pacific and Africa North Asia Middle East Other Total
In millions of euro
IFRS 8.33(a)
2011 External revenues 569 258 225 136 54 1,046 1,370 715
489 32
42 63
4,231 768
IFRS 8.33(b)
Non-current assets*
2010 488 236 199 127 1,038 1,423 619 50 246 29 16 67 3,830 708
IFRS 8.33(a)
External revenues
IFRS 8.33(b)
Non-current assets*
Includes property and equipment, intangible assets and investment property.
Illustrative financial statements: Banks June 2011 151
152

IFRS 7 B2 .6,
An entity groups financial instruments into classes that are appropriate to the nature of the information disclosed, and that take into account the characteristics of those financial instruments. In these illustrative financial statements, the line items in the statement of financial position reflect the Groups activities. This note reconciles the carrying amount of each of the measurement categories of financial assets and liabilities in IFRS 9 (2010: IAS 39) to the balance sheet headings. Therefore, for example:
Derivatives are presented either as trading assets or liabilities, or derivative assets or liabilities held for risk management to reflect the Groups two uses of derivatives. Derivatives held for risk management purposes include qualifying hedging instruments and non-qualifying hedging instruments held for risk management purposes rather than for trading. Investment securities include financial assets measured at amortised cost, at fair value through profit or loss and at fair value through other comprehensive income. Loans and advances include financial assets categorised at fair value through profit or loss and at amortised cost.
However, other presentations are possible. 2.

IFRS 7 .25, 26
The fair values of each class of financial assets and liabilities are disclosed in a way that permits them to be compared with their carrying amounts. In disclosing fair values, an entity groups financial assets and liabilities into classes, but offsets them only to the extent that their carrying amounts are offset in the statement of financial position. The carrying amounts of issued financial liabilities in qualifying fair value hedging relationships for which only the benchmark interest rate is the hedged risk, are adjusted for gains or losses attributable to the hedged interest rate only; therefore these instruments are not carried at fair value. Changes in the credit spread of the issuer are not included in the adjustments made to the carrying amounts.
3.
Reference
IFRS 7 8, 25 .6,
7. Financial assets and liabilities (a) Accounting classifications and fair values1, 2, 3 The table below sets out the carr ying amounts and fair values of the Groups financial assets and financial liabilities:
Note
Fair value through profit or loss mandatory Amortised cost
Fair value Fair value through held for profit or loss trading designated
Fair value through other comprehensive income Total carrying amount
Fair value
18 19 19 20 21 22 22 23 23 1,939 23,445 19 20 28 29 30 31 826 828 1,654 3,986 2,879 2,879 2,409 2,409 858 27 27 -
928 15,734
2,972 5,572 59,084 1,457 69,085 17 ,878 53,646 8,818 5,642 85,984
2,972 928 15,734 858 5,572 3,986 59,084 4,845 1,457 95,436 826 828 17 ,878 53,646 11,227 5,642 90,047
2,972 928 15,734 858 5,602 3,986 62,378 4,845 1,562 98,865 826 828 18,501 55,696 12,294 5,763 93,908
153
I n millions of euro March 2011 31 ash and cash equivalents C ledged trading assets P on-pledged trading assets N Derivative assets held for risk anagement m oans and advances to banks L oans and advances to customers L Measured at fair value Measured at amortised cost vestment securities In Measured at fair value Measured at amortised cost Trading liabilities Derivative liabilities held for risk management Deposits from banks Deposits from customers Debt securities issued Subordinated liabilities
154
Reference
IFRS 7 8, 25 .6,
7. Financial assets and liabilities (continued) (a) Accounting classifications and fair values (continued)
Note Designated Trading at fair value Held-tomaturity Loans and receivables Availablefor-sale Other amortised cost Total carrying amount Fair value
In millions of euro
18 19 19 20 21 726 16,494 6,384 2,208 1,641 2,208 19 20 28 29 30 29 31 789 852 101 60,420 3,239 101 3,145 52,721 1,929 1,929 22 22 23 23 4,707 939* 939 15,430 48,904 8,040 4,985 77 ,359
878 14,890
2,992 -
2,992 878 14,890 726 4,707 3,145 53,660 5,168 101 86,267 852 789 15,430 48,904 2,208 8,040 4,985 81,208
2,992 878 14,890 726 4,729 3,145 55,304 5,168 104 87 ,936 852 789 15,822 49,836 2,208 8,525 5,078 83,110
31 March 2010 Cash and cash equivalents Pledged trading assets Non-pledged trading assets Derivative assets held for risk management Loans and advances to banks Loans and advances to customers: Measured at fair value Measured at amortised cost Investment securities: Measured at fair value Measured at amortised cost
Trading liabilities Derivative liabilities held for risk management Deposits from banks Deposits from customers Debt securities issued: Measured at fair value Measured at amortised cost Subordinated liabilities
* Finance lease receivables (see note 22)

155
156
157
Reference

7. Financial assets and liabilities (continued) (a) Accounting classifications and fair values (continued) (i) Fair value hedging relationships Certain subordinated liabilities and loans and advances to customers shown within other amortised cost and loans and receivables respectively are designated in qualifying fair value interest rate hedging relationships (2011: 3,882 million and 1,564 million; 2010: 3,058 million and 1,438 million) and are fair valued with respect to the hedged interest rate. (ii) Investment securities unquoted equity securities at cost The above table includes 24 million at 31 March 2010 of equity investment securities in both the carrying amount and fair value columns that were measured at cost and for which disclosure of fair value was not provided because their fair value was not considered to be reliably measureable. These are investments in mutual entities that provide transaction processing and settlement services to members on a pricing basis intended to recover the entities operating costs. The investments are neither redeemable nor transferable and there is no market for them. The Group does not intend to dispose of these investments. On adoption of IFRS 9 those securities have been designated as at fair value through other comprehensive income.
IFRS 7 .29(b), 30 IAS 39.46
158

IAS 8.28, 29
When a change in accounting policy, either voluntarily or as a result of the initial application of a standard, has an effect on the current period or any prior period, an entity discloses, among other things, the amount of the adjustment for each financial statement line item affected. When an entity first applies IFRS 9, it discloses (in tabular format unless another format is more appropriate) for each class of financial assets at the date of initial application:
IFRS 7 .44 (I), (J)
the original measurement category and carrying amount determined in accordance with IAS 39; the new measurement category and carrying amount determined in accordance with IFRS 9; and the amount of any financial assets in the statement of financial position that were previously designated as measured at fair value through profit or loss but are no longer so designated, distinguishing between those that IFRS 9 requires an entity to reclassify and those that an entity elects to reclassify.
When an entity first applies IFRS 9, it discloses qualitative information to enable users to understand:
how it applied the classification requirements in IFRS 9 to those financial assets whose classification has changed as a result of applying IFRS 9; and the reasons for any designation or de-designation of financial assets or financial liabilities as measured at fair value through profit or loss.
159
Reference
IFRS 7 .44I

7. Financial assets and liabilities (continued) (b) Classification of financial assets on the date of initial application of IFRS 91 The following table summarises the transitional classification and measurement adjustments to the Groups financial assets on 31 December 2010, the Groups date of initial application of IFRS 9. In addition, the table sets out the measurement adjustments, which were recognised as an adjustment to the opening equity as at 1 April 2010 :
IFRS 7 .44I(c)
IFRS 7 .44I(c)
IFRS 7 .44I(c)
In thousands of euro ash and cash C equivalents rading assets T through profit or loss Derivative assets held for risk management oans and advances L to banks oans and advances L to customers (a) oans and advances L o customers (b) t nvestment securities I debt nvestment securities I debt (c) nvestment securities I debt nvestment securities I debt (d) nvestment securities I debt (e) nvestment securities I equity (f) Investment securities equity (f) nvestment securities I equity (g)
At 31 December 2010 Original Original classification under Note IAS 39 New classification under IFRS 9 carrying amount under IAS 39 New carrying amount under IFRS 9
At 1 April 2010 Original carrying amount under IAS 39 New carrying amount under IFRS 9
18 19
20
21 22 22
23
23
23 23 23
Loans and receivables Fair value through profit or loss Fair value through profit or loss Loans and receivables Loans and receivables Fair value through profit or loss (designated) Fair value through profit or loss (designated) Fair value through profit or loss (designated) Held-to-maturity investments Available for sale Available for sale Fair value through profit or loss (designated) Available for sale Available for sale
Amortised cost Fair value
2,982
2,982
2,992
2,992
23
23
23
15,968 Fair value through profit or loss 786 Amortised cost 5,101 Amortised cost 52,760 Fair value through profit or loss (mandatory) 3,847 Fair value through profit or loss (designated) 2,178 Fair value through profit or loss (mandatory) 790 Amortised cost 103 Amortised cost 1,335 Fair value through profit or loss 303 Fair value through profit or loss (mandatory) 157 Fair value through profit or loss 235 Fair value through other comprehensive income 24
15,968
15,768
15,768
786 5,101 52,781
726 4,707 53,660
726 4,707 53,680
3, 847
3,145
3,145
2,178
2,282
2,282
790 103 1,401
820 101 1,237
820 101 1,319
303
403
403
157
137
137
235
265
265
24
24
24
160
161
Reference

7. Financial assets and liabilities (continued) (b) Classification of financial assets on the date of initial application of IFRS 9 (continued) he Groups accounting policies on classification of financial instruments under IFRS 9 are T set out in note 3(j)(ii). Application of these policies resulted in reclassification, which are set out in the table above and explained further below.
IFRS 7 .44J(a)
IFRS 7 .44I(c), 44J(a)
IFRS 7 .44I(c), 44J(a)
IFRS 7 .44J(a)
IFRS 7 .44J(a)
IFRS 7 .44J(a)
(a) Prior to the adoption of IFRS 9 certain trading assets and investment securities were reclassified out of the fair value through profit or loss and available-for-sale categories to loans and advances at their then fair values. On adaption of IFRS 9 the carrying amount of those assets was adjusted so that their amortised cost under IFRS 9 was as if those assets were accounted for at amortised cost from their inception. (b) Certain loans and advances to customers held by the Groups investment banking segment have been classified as mandatorily measured at fair value through profit or loss as they are not held within a business model with an objective to hold assets in order to collect contractual cash flows. Prior to the adoption of IFRS 9 these loans and advances to customers were designated at fair value through profit or loss as the Group manages these loans and advances on a fair value basis in accordance with a documented investment strategy. Internal reporting and performance measurement of these loans and advances are on a fair value basis. (c) Prior to the adoption of IFRS 9 certain investment securities were designated as at fair value through profit or loss because the Group holds related derivatives at fair value through profit or loss and designation eliminated or significantly reduced an accounting mismatch that would otherwise arise. These assets now meet the criteria for mandatory measurement at fair value through profit or loss since the contractual cash flows of these securities are not solely payments of principal and interest on the principal outstanding. The reclassified assets include certain asset backed securities whose exposure to credit risk is higher than the exposure to credit risk of the underlying pool of financial assets. (d) Certain debt securities are held by the Group Central Treasury in a separate portfolio for a long term yield and as a liquidity reserve in an additional separate portfolio. The securities may be sold in order to meet unexpected liquidity shortfalls but such sales are not anticipated to be more than infrequent. The Group considers that these securities are held within a business model whose objective is to held assets to collect the contractual cash flows. These assets have been classified as measured at amortised cost under IFRS 9. (e) Certain debt securities are held by the Group Central Treasury in separate portfolios in order to manage the short-term liquidity. Sales from this portfolio are frequently made to meet the ongoing business needs. The Group has determined that these securities are not held within a business model whose objective is to held assets in order to collect contractual cash flows. These assets are therefore measured at fair value through profit or loss. (f) Under IFRS 9 all equity instruments other than those for which the fair value through other comprehensive income option is selected are measured at fair value through profit or loss. Prior to the adoption of IFRS 9 all equity instruments not held for trading were classified as available-for-sale equity investments.
162

IFRS 7 .20(b)
An entity discloses, either in the statement of comprehensive income or in the notes, total interest income and total interest expense, calculated using the effective interest method, for financial assets and financial liabilities that are not at fair value through profit or loss. Presentations other than that shown in these illustrative financial statements are possible. For example, an entity may present interest income and interest expense on financial instruments designated at fair value through profit or loss within net interest income. The level of detail presented in these illustrative financial statements is not always required specifically by IFRS 7 Our publication Insights into IFRS discusses presentation of gains and . losses relating to derivatives (5.6.220.80 110 and 5.6.270.40 70).
2.
This publication does not illustrate disclosures that may be applicable to revenue sources that are not specific to banking operations, such as service concession arrangements and construction contracts. For an illustration of such disclosures, see the August 2010 edition of our publication Illustrative financial statements.
163
Reference
IFRS 7 .44J(a)

7. Financial assets and liabilities (continued) (b) Classification of financial assets on the date of initial application of IFRS 9 (continued) g) Certain equity investments held by the Group for strategic purposes have been designated ( as measured at fair value through other comprehensive income. Prior to the adoption of IFRS 9 those securities were measured at cost because their fair value was not considered to be reliably measureable. IFRS 9 has removed this cost exception.
IFRS 9.7 .2.3
The date of initial application of IFRS 9 is 31 December 2010, which is a date different than the beginning of a reporting period. The Group could not select 1 April 2010 as the date of initial application as IFRS 9 was not in issue at that date.
IAS 18.35(b)(iii)
8. Net interest income1, 2
IFRS 7 .20(a)(vi) IFRS 7 .20(a)(vi) IFRS 7 .20(a)(vi)
Interest income Cash and cash equivalents Derivative assets held for risk management Loans and advances to banks Loans and advances to customers Investment securities Other Total interest income Interest expense Derivative liabilities held for risk management Deposits from banks Deposits from customers Debt securities issued Subordinated liabilities Other Total interest expense Net interest income
86 56 282 2,772 99 6 3,301
86 64 247 3,023 105 3 3,528
IFRS 7 .20(a)(v) IFRS 7 .20(a)(v) IFRS 7 .20(a)(v) IFRS 7 .20(a)(v)
120 54 469 343 410 10 1,406 1,895
60 48 897 316 353 12 1,686 1,842
IFRS 7 .20(d)
Included within various line items under interest income for the year ended 31 March 2011 is a total of 14 million (2010: 11 million) relating to impaired financial assets. Included within interest income (or expense), in the line item corresponding to where the interest income (or expense) on the hedged item is recognised, are fair value gains of 34 million (2010: 27 million) on derivatives held in qualifying fair value hedging relationships, and 30 million (2010: 26 million) representing net decreases in the fair value of the hedged item attributable to the hedged risk. Total interest income and expense calculated using the effective interest method reported above that relate to financial assets or liabilities not carried at fair value through profit or loss are 3,283 million (2010: 3,463 million) and 1,788 million (2010: 1,626 million) respectively. During the year ended 31 March 2011, gains of 10 million (2010: gains of 8 million) and losses of 20 million (2010: losses of 16 million) relating to cash flow hedges were transferred from equity to profit or loss and are reflected in interest income or expense. Net ineffectiveness recognised on cash flow hedges during the year ended 31 March 2011 was a gain of 4 million (2010: a loss of 4 million).
IFRS 7 .24(a)
IFRS 7 .20(b)
IFRS 7 .23(d), IAS 18.35(b)(iii)
164

IFRS 7 .20(c)
An entity discloses, either in the statement of comprehensive income or in the notes, fee income and expense (other than amounts included in determining the effective interest rate) arising from:
financial assets measured at amortised cost or financial liabilities that are not at fair value through profit or loss; and trust and other fiduciary activities that result in the holding or investing of assets on behalf of individuals, trusts, retirement benefit plans and other institutions.
2.
In these illustrative financial statements, net trading income:
includes the entire profit or loss impact (gains and losses) for trading assets and liabilities, including derivatives held for trading; and does not include the profit or loss impact of derivatives that are held for risk management purposes.
165
Reference

9. Net fee and commission income1
IFRS 7 .20(c)
Fee and commission income Retail banking customer fees Corporate banking credit related fees Investment banking fees Brokerage Asset management fees Financial guarantee contracts issued Other Total fee and commission income Fee and commission expense Brokerage Inter bank transaction fees Other Total fee and commission expense Net fee and commission income
240 199 133 130 106 34 12 854
203 177 123 120 96 30 10 759
94 38 47 179 675
87 27 21 135 624
IFRS 7 .20(c)(ii)
Asset management fees relate to fees earned by the Group on trust and fiduciary activities where the Group holds or invests assets on behalf of its customers. Net fee and commission income above excludes amounts included in determining the effective interest rate on financial assets measured at amortised cost and liabilities that are not at fair value through profit or loss but includes income of 651 million (2010: 523 million) and expense of 71 million (2010: 52 million) relating to such financial assets and liabilities. 10. Net trading income2
IFRS 7 .20(c)(i)
Fixed income Equities Foreign exchange Other

IFRS 7 .20(a)(i)
1,023 70 90 13 1,196
906 17 16 (27) 912
Net trading income
166

IFRS 7 .20(a)(i)
An entity separately discloses, either in the statement of comprehensive income or in the notes, the net gains or losses on financial assets:

mandatorily measured at fair value through profit or loss; and designated upon initial recognition at fair value through profit or loss in accordance with IFRS 9.
In these illustrative financial statements, net income from other financial instruments at fair value through profit or loss includes:
the entire profit or loss impact of financial assets and financial liabilities mandatorily measured at fair value through profit or loss other than those held for trading; the entire profit or loss impact of assets and liabilities designated at fair value through profit or loss upon initial recognition; the realised and unrealised gains and losses on derivatives held for risk management purposes but not forming part of a qualifying hedging relationship; and the ineffective portion of fair value changes in qualifying hedging derivatives designated in cash flow hedges.
167
Reference

11. Net income from other financial instruments at fair value through profit or loss1
IFRS 7 .20(a)(i) IFRS 7 .20(a)(i) IFRS 7 .20(a)(i) IFRS 7 .20(a)(i) IFRS 7 .20(a)(i) IFRS 7 .20(a)(i) IFRS 7 .20(a)(i) IFRS 7 .20(a)(i) IFRS 7 .20(a)(i) IFRS 7 .20(a)(i) IFRS 7 .20(a)(i) IFRS 7 .20(a)(i)
Net income from financial instruments mandatorily measured at fair value through profit or loss other than those held for trading Other derivatives held for risk management purposes: Interest rate Credit Equity Foreign exchange nvestment securities: I Corporate bonds Government bonds Equities Asset-backed securities oans and advances L Net income from financial instruments designated at fair value through profit or loss Investment securities: Corporate bonds Equities Asset-backed securities Loans and advances Debt securities issued
(76) 44 (54) (10) 190 8 59 12 153
(48) (21) 42 5 -
IFRS 7 .20(a)(i) IFRS 7 .20(a)(i) IFRS 7 .20(a)(i) IFRS 7 .20(a)(i) IFRS 7 .20(a)(i) IFRS 7 .20(a)(i)
123 (10) (181) 68 (154) 172
210 (13) (151) 194 (137) 81
IFRS 7 .10(a)
At 31 March 2010 the accumulated amount of the change in fair value attributable to changes in credit risk on financial liabilities designated at fair value through profit or loss was a gain of 4 million. For the year ended 31 March 2010 the change in fair value attributable to changes in credit risk on financial liabilities designated at fair value through profit or loss was a gain of 2 million.
168

IFRS 7 .20(a)
An entity discloses, either in the statement of comprehensive income or in the notes, the net gains or losses on financial assets or financial liabilities by measurement category specified in IFRS 9. In these illustrative financial statements dividends on equity securities measured at fair value through other comprehensive income have been included in other revenue. However, other presentations are possible.
169
Reference

12. Other revenue1
IFRS 7 .20(a)(ii), IAS 1.98(d)
Net loss on sale of available-for-sale securities: Government bonds Corporate bonds Equities Dividends on available-for-sale equity securities ividends on equity securities measured at fair value through D ther comprehensive income o Gain on securitisation of loans and receivables Foreign exchange gain Other 2 83 170 47 302 (9) (43) (17) 8 194 188 50 371
IFRS 7 .20(a)(ii) IFRS 7 .20(a)(vii) IFRS 7 .20(a)(vi) IAS 21.52(a)
IFRS 7 .24(c)
Net ineffectiveness recognised for net investment hedges for the year ended 31 March 2011 was a gain of 12 million (2010: gain of 9 million). Dividends on equity securities measured at fair value through other comprehensive income relate to investments held at the end of the reporting period. 13. Net gain/(loss) arising from derecognition of financial assets measured at amortised cost uring the year ended 31 March 2011 the Group sold certain financial assets measured at D amortised cost. These sales were made as, these financial assets no longer met the Groups investment policy due to a severe deterioration in their credit risk.
IFRS 7 .20A
IFRS 7 .20A
etails of the losses arising from derecognition of those financial assets are set out below: D n millions of euro I 2011 overnment bonds G 4 orporate bonds C 5 9
14. Personnel expenses
IAS 19.46 IFRS 2.51(a) IFRS 2.51(a)
Wages and salaries Compulsory social security obligations Contributions to defined contribution plans Equity-settled share-based payment transactions Cash-settled share-based payment transactions Increase in liability for defined benefit plans Increase in liability for long service-leave
33
1,623 215 265 75 44 52 8 2,282
1,429 194 243 25 35 50 8 1,984
170

IFRS 2.52
An entity provides additional disclosures if the required disclosures in IFRS 2 Share-based Payment are not sufficient to enable the user to understand the nature and extent of the share-based payment arrangements, how the fair value of services have been determined for the period, and the effect on profit or loss.
171
Reference
14. Personnel expenses (continued) Share-based payment transactions1 IFRS 2.44, 45(a) On 1 April 2009 the Group established a share option programme that entitles key management personnel and senior employees to purchase shares in the Bank. On 1 April 2010 a further grant on similar terms (except for exercise price) was offered to these employee groups. In accordance with these programmes, holders of vested options are entitled to purchase shares at the market price of the shares at the date of grant. Additionally, two share option arrangements granted before 7 November 2002 exist. The recognition and measurement principles in IFRS 2 have not been applied to these grants. On 1 April 2007 and 1 April 2010 the Group granted share appreciation rights (SARs) to other employees that entitle the employees to a cash payment. The amount of the cash payment is determined based on the increase in the share price of the Bank between grant date and vesting date.
IFRS 2.45(a)
The terms and conditions of the grants are as follows; all options are to be settled by physical delivery of shares, while share appreciation rights are settled in cash:
Contractual In millions of instruments Grant date/employees entitled Number of instruments Vesting conditions life of options
Option grant to senior employees at 1 April 2001 Option grant to senior employees at 1 April 2002 Option grant to senior employees at 1 April 2009 Option grant to key management personnel at 1 April 2009 Option grant to senior employees at 1 April 2010 Option grant to key management personnel at 1 April 2010 Total share options SARs granted to other employees at 1 April 2007 SARs granted to other employees at 1 April 2010 Total SARs
25
3 years service and 10 percent increase in operating income in each of the 3 years 3 years service and 10 percent increase in operating income in each of the 3 years 3 years service and 10 percent increase in operating income in each of the 3 years 3 years service
10 years
15
10 years
10
10 years 10 years
10 25 3 years service and 10 percent increase in operating income in each of the 3 years 3 years service 10 95 10 30 40 3 years service 3 years service
10 years 10 years
172
173
Reference

14. Personnel expenses (continued) Share-based payment transactions (continued) The number and weighted average exercise price of share options is as follows:
Weighted average exercise price 2011 Number of options 2011 Weighted average exercise price 2010 Number of options 2010
IFRS 2.45(b)
In millions of options IFRS 2.45(b)(i) IFRS 2.45(b)(iii) IFRS 2.45(b)(iv) IFRS 2.45(b)(v) IFRS 2.45(b)(ii) IFRS 2.45(b)(vi) IFRS 2.45(b)(vii) IFRS 2.45(d)
Outstanding at the beginning of the reporting period Forfeited during the year Exercised during the year Expired during the year Granted during the year Outstanding at 31 March Exercisable at 31 March
9.9 9.5 10.0 12.0 10.8 10.1
55.0 (2.5) (3.0) 35.0 84.5 30.0
9.5 9.5 10.5 9.9 9.8
40.0 (5.0) 20.0 55.0 35.0
The options outstanding at 31 March 2011 have an exercise price in the range of 9.0 to 12.0 (2010: 9.5 to 11.0) and a weighted average contractual life of 7 years (2010: 7 years). .3 .1 The weighted average share price at the date of exercise for share options exercised during the year ended 31 March 2011 was 11.50 (2010: No options exercised). The fair value of services received in return for share options granted is based on the fair value of share options granted, measured using a binomial lattice model, with the following inputs:
Key management personnel Fair value of share options and assumptions 2011 Key management personnel 2010
IFRS 2.45(c)
IFRS 2.46, 47(a)(i)
Senior employees 2011
Senior employees 2010
IFRS 2.47(a) IFRS 2.47(a)(i) IFRS 2.47(a)(i) IFRS 2.47(a)(i) IFRS 2.47(a)(i) IFRS 2.47(a)(i) IFRS 2.47(a)(i)
Fair value at measurement date Share price Exercise price Expected volatility* Option life (expected weighted average life) Expected dividends* Risk free interest rate (based on government bonds)* * Annual rates
4.5 12.0 12.0 42.5% 8.6 years 3.2% 3.9%
4.0 10.5 10.5 40.9% 8.8 years 3.2% 3.9%
3.9 12.0 12.0 40.3% 5.4 years 3.2% 3.8%
3.5 10.5 10.5 39.5% 5.5 years 3.2% 3.8%
Employee expenses for share-based payment transactions

In millions of euro IFRS 2.51(a) IFRS 2.51(a) IFRS 2.51(a) IFRS 2.51(a) IFRS 2.51(a) IFRS 2.51(a) IFRS 2.51(b)(i) IFRS 2.51(b)(ii) Note 2011 2010
Share options granted in 2009 Share options granted in 2010 Expense arising from SARs granted in 2007 Expense arising from SARs granted in 2010 Effect of changes in the fair value of SARs Total expense recognised as personnel expenses Total carrying amount of liabilities for cash-settled arrangements Total intrinsic value of liability for vested benefits The carrying amount of the liability at 31 March 2010 was settled in 2010.
25 50 30 14 119 33 44 -
25 28 7 60 38 38
174

IAS 40.75(f)(iii) When
applicable, an entity also discloses the direct operating expenses related to investment property that did not generate rental income during the year. An entity discloses the amount of expense (income) related to those changes in accounting policies and errors that are included in the determination of profit or loss in accordance with IAS 8 because they cannot be accounted for retrospectively. When applicable, any deferred tax expenses arising from the write-down, or reversal of a previous write-down of deferred tax assets, are disclosed separately. The reconciliation of the effective tax rate is based on an applicable tax rate that provides the most meaningful information to users. In these illustrative financial statements the reconciliation is based on the entitys domestic tax rate, with a reconciling item in respect of tax rates applying to Group entities in other jurisdictions. However, in some cases it might be more meaningful to aggregate separate reconciliations prepared using the domestic tax rate in each individual jurisdiction.
2.
IAS 12.80(h)
3.
IAS 12.80(g)
4.
IAS 12.85
IAS 12.81(c)
In these illustrative financial statements, both a numerical reconciliation between total tax expense and the product of accounting profit multiplied by the applicable tax rates, and a numerical reconciliation between the average effective tax rate and the applicable tax rate is disclosed. An entity explains the relationship using either or both of such numerical reconciliations, and also discloses the basis on which the applicable tax rate is computed.
175
Reference

14. Personnel expenses (continued) Share-based payment transactions (continued) The fair value of SARs is determined using the Black-Scholes formula. The model inputs as at the grant date were: share price of 12.0, exercise price of 12.0, expected volatility of 41.5 percent a year, expected dividends of 3.2 percent a year, a term of three years and a risk-free interest rate of 4.4 percent a year. The fair value for the liability is remeasured at each reporting date and at settlement date. Expected volatility is estimated by considering historic average share price volatility. 15. Other expenses
IFRS 2.52
IAS 40.75(f)(ii) IAS 1.98(b) IAS 1.98(b) IAS 1.98(g)
Software licensing and other information technology costs Direct operating expenses for investment property that generated rental income1 Branch closure cost provisions Redundancy provisions Onerous lease provisions Other
47 1 5 2 (1) 343 397
58 1 67 33 2 324 485
32 32 32
16. Tax expense

IAS 12.80(a) IAS 12.80(b)
Current tax expense2 Current year Adjustments for prior years
194 (5) 189
133 (6) 127
IAS 12.80(c) IAS 12.80(d) IAS 12.80(f)
Deferred tax expense2, 3 Origination and reversal of temporary differences Reduction in tax rate Recognition of previously unrecognised tax losses 26 Total tax expense
6 (2) (6) (2) 187
(2) (7) (9) 118
IAS 12.81(c)
Reconciliation of effective tax rate4

In millions of euro 2011 2011 2010 2010
Profit before tax Tax using the domestic corporation tax rate Effect of tax rates in foreign jurisdictions* Non-deductible expenses Tax exempt income Tax incentives Recognition of previously unrecognised tax losses Over-provided in prior years Total tax expense
IAS 12.81(d)
849 33.0% -13.7% 5.3% -0.7% -0.6% -0.7% -0.6% 22.0% 280 (116) 45 (6) (5) (6) (5) 187 33.0% -13.1% 3.9% -3.1% -1.2% -1.0% -0.9% 17 .6%
672 222 (88) 26 (21) (8) (7) (6) 118
* Tax rates in several foreign jurisdictions decreased in 2011 and 2010.

176

IAS 1.90
An entity discloses the amount of tax related to each component of other comprehensive income, either in the statement of comprehensive income, or in the notes. In these illustrative financial statements, tax related to each component of other comprehensive income is presented in the notes. An entity is required to present earnings per share if its ordinary shares or potential ordinary shares are publicly traded, or if it is in the process of issuing ordinary shares or potential ordinary shares in public securities markets. When earnings per share calculations reflect changes in the number of shares due to events that happened after the end of the reporting period, an entity discloses that fact. If an entity discloses, in addition to basic and diluted earnings per share, per share amounts using a reported component of profit other than profit or loss for the year attributable to ordinary shareholders, then such amounts are calculated using the weighted average number of ordinary shares determined in accordance with IAS 33 Earnings Per Share. If a component of profit is used that is not reported as a line item in the statement of comprehensive income, then an entity presents a reconciliation between the component used and a line item that is reported in the statement of comprehensive income. When applicable, an entity discloses instruments, including contingently issuable shares, that could potentially dilute basic earnings per share in the future, but were not included in the calculation of diluted earnings per share because they were anti-dilutive for the years presented.
2.
IAS 33.2
3.
IAS 33.64
4.
IAS 33.73
IAS 33.73
5.
IAS 33.70(c)
177
Reference

16. Tax expense (continued) Tax recognised in other comprehensive income1
2011 Tax Before (expense) tax benefit 2010 Tax Before (expense) tax benefit
IAS 12.81(ab)
In millions of euro IAS 1.90 IAS 1.90 IAS 1.90
Net of tax
Net of tax
IAS 1.90
Cash flow hedges Change in fair value of financial liabilities due to own credit risk Investment securities measured at fair value through other comprehensive income Available-for-sale investment securities
(10) (10)
3 3
(7) (7)
(9) -
3 -
(6) -
3 (17)
(1) 5
2 (12)
(34) (43)
11 14
(23) (29)
17. Earnings per share2, 3 Basic earnings per share The calculation of basic earnings per share at 31 March 2011 was based on the profit attributable to ordinary shareholders of 614 million (2010: 508 million) and a weighted average number of ordinary shares3 outstanding of 1,757 million (2010: 1,756.0 million), .5 calculated as follows:
IAS 33.70(a)
Profit attributable to ordinary shareholders

Net profit for the year attributable to equity holders of the Bank Dividends on perpetual bonds classified as equity Net profit attributable to ordinary shareholders
34
634 (20) 614
528 (20) 508
Diluted earnings per share The calculation of diluted earnings per share at 31 March 2011 was based on the profit attributable to ordinary shareholders of 614 million (2010: 508 million) and a weighted average number of ordinary shares outstanding after adjustment for the effects of all dilutive potential ordinary shares of 1,770.0 million (2010: 1,764.0 million), calculated as follows:
IAS 33.70(a)
Profit attributable to ordinary shareholders (diluted)4

Profit for the year attributable to ordinary shareholders

IAS 33.70(b)
614
508
Weighted average number of ordinary shares (diluted)5

In millions of shares Note 2011 2010
Weighted average number of ordinary shares (basic) Effect of share options in issue Weighted average number of ordinary shares (diluted)
34
1,757 .5 12.5 1,770.0
1,756.0 8.0 1,764.0
The average market value of the Banks shares for purposes of calculating the dilutive effect of share options was based on quoted market prices for the period that the options were outstanding.
178

IFRS 7 8 .6,
An entity groups financial instruments into classes that are appropriate to the nature of the information disclosed, and that take into account the characteristics of those financial instruments. In these illustrative financial statements, the line items in the statement of financial position reflect the Groups activities. Accordingly, derivatives are presented either as trading assets or liabilities, or derivative assets or liabilities held for risk management purposes, to reflect the Groups two uses of derivatives. Derivatives held for risk management purposes include qualifying hedge instruments and non-qualifying hedge instruments held for risk management purposes rather than for trading.
179
Reference
IAS 7 .45

18. Cash and cash equivalents
Cash and balances with banks Unrestricted balances with central banks Money market placements
256 118 2,598 2,972
184 128 2,680 2,992
IFRS 7 .8(a)(ii)
19. Trading assets and liabilities1 Trading assets

Pledged trading assets In millions of euro 2011 Nonpledged trading assets 2011 Total trading assets 2011 Pledged trading assets 2010 Nonpledged trading assets 2010 Total trading assets 2010
Government bonds Corporate bonds Treasury bills Equities Asset-backed securities Derivative assets: Interest rate Credit Equity Foreign exchange OTC structured derivatives
632 231 65 928 928
5,710 4,260 3,879 391 516 14,756 78 332 84 150 334 978 15,734
6,342 4,491 3,879 456 516 15,684 78 332 84 150 334 978 16,662
576 245 57 878 878
5,522 3,825 3,744 358 463 13,912 91 369 79 141 298 978 14,890
6,098 4,070 3,744 415 463 14,790 91 369 79 141 298 978 15,768
IFRS 7 .14(a), 9.3.2.23(a), IAS 39.37(a)
The pledged trading assets presented in the table above are those financial assets that may be repledged or resold by counterparties to whom they have been transferred. The total financial assets that have been pledged as collateral for liabilities, including amounts reflected above, at 31 March 2011 was 2,633 million (2010: 2,249 million). These transactions are conducted under terms that are usual and customary to standard lending, and securities borrowing and lending activities, as well as requirements determined by exchanges on which the Bank acts as an intermediary. Collateral accepted as security for assets At 31 March 2011 the fair value of financial assets accepted as collateral that the Group is permitted to sell or repledge in the absence of default is 6,950 million (2010: 6,747 million). At 31 March 2011 the fair value of financial assets accepted as collateral that have been sold or repledged is 661 million (2010: 705 million). The Group is obliged to return equivalent securities. These transactions are conducted under terms that are usual and customary to standard lending, securities borrowing, and lending activities.
IFRS 7 .14(b)
IFRS 7 .15(a)
IFRS 7 .15(b)
IFRS 7 .15(c)
180
181
Reference

19. Trading assets and liabilities (continued) Reclassifications out of trading assets This disclosure is relevant for the comparative period only. On adoption of IFRS 9 the assets reclassified under IAS 39 were classified in accordance with the transition requirements of IFRS 9 (see note 7(b)). With effect from 15 September 2008 and 31 May 2009, the Group reclassified certain trading assets, for which it had changed its intent such that it no longer holds these financial assets for the purpose of selling in the short term, to loans and advances to customers and to available-for-sale investment securities. For reclassified trading assets that would have met the definition of loans and receivables, the Group has the intention and ability to hold them for foreseeable future or until maturity. For other trading assets that were reclassified in 2008, the Group determined that the bankruptcy of [Bank X] on 15 September 2008 in the context of the deterioration of the financial markets during the third quarter of 2008 constituted rare circumstances that permit reclassification out of the trading category.
IFRS 7 .12A(a), (b)
The table below sets out the financial assets reclassified and their carrying and fair values:
2010 Carrying value
In millions of euro
Amounts reclassified
Fair value
Assets reclassified in 2009: Trading assets reclassified to loans and advances to customers
296 296
276 276
256 256
Assets reclassified in 2008: Trading assets reclassified to loans and advances to customers Trading assets reclassified to available-for-sale investment securities
1,140 240 1,380
1,069 182 1,251
1,005 182 1,187
182
183
Reference
19. Trading assets and liabilities (continued) Reclassifications out of trading assets (continued) IFRS 7 .12A(d), (e) The table below sets out the amounts actually recognised in profit or loss and other comprehensive income for the year ended 31 March 2010 in respect of financial assets reclassified out of the trading category:
Reclassifications in 2009 Other compreProfit hensive or loss income 2010 2010 Reclassification in 2008 Other compreProfit hensive or loss income 2010 2010
In millions of euro
Year before reclassification Trading assets reclassified to loans and advances to customers: Net trading income Year after reclassification Trading assets reclassified to loans and advances to customers: Interest income Net impairment loss on financial assets Trading assets reclassified to available-for-sale investment securities: Interest income Net impairment loss on financial assets Net change in fair value
(18)
13 (5)
51 (17)
17 (18) 33
(17) (17)
IFRS 7 .12A(d)
For assets reclassified in 2009, net trading income for the year ended 31 March 2009 included net losses of 19 million for trading assets reclassified to loans and advances to customers. The table below sets out the amounts that would have been recognised in the year of and following reclassification if the reclassifications had not been made:
Reclassifications in 2009 Profit or loss 2010 Reclassifications in 2008 Profit or loss 2010
IFRS 7 .12A(e)
In millions of euro
Trading assets reclassified to loans and advances to customers: Net trading income Trading assets reclassified to available-for-sale investment securities: Net trading income
(12) (12)
(20) (18) (38)
184
185
Reference

19. Trading assets and liabilities (continued) Reclassifications out of trading assets (continued) At 31 May 2009 the effective interest rates on trading assets reclassified to loans and advances to customers ranged from 6 percent to 10 percent with expected recoverable cash flows of 336 million. At 15 September 2008 the effective interest rates on trading assets reclassified to loans and advances to customers ranged from 8 percent to 12 percent with expected recoverable cash flows of 1,345 million.
IFRS 7 .12A(f)
IFRS 7 .12A(f)
At 15 September 2008 the effective interest rates on trading assets reclassified to available-forsale investment securities ranged from 7 percent to 11 percent with expected recoverable cash flows of 280 million. Trading liabilities
IFRS 7 .8(e)(ii)
Short sold positions debt Short sold positions equity Derivative liabilities: Interest rate Credit Equity Foreign exchange OTC structured derivatives
355 63 418 23 145 42 122 76 408 826
453 27 480 25 133 32 108 74 372 852
IFRS 7 .28
Unobservable valuation differences on initial recognition Any difference between the fair value at initial recognition and the amount that would be determined at that date using a valuation technique in a situation in which the valuation is dependent on unobservable parameters is not recognised in profit or loss immediately but is recognised over the life of the instrument on an appropriate basis or when the instrument is redeemed, transferred or sold, or the fair value becomes observable. The table below sets out the aggregate difference yet to be recognised in profit or loss at the beginning and end of the year with a reconciliation of the changes of the balance during the year for trading assets and liabilities:
Balance at the beginning of the reporting period Increase due to new trades Reduction due to passage of time Reduction due to redemption/sales/transfers/improved observability Balance at 31 March
22 24 (8) (12) 26
16 14 (4) (4) 22
186

IFRS 7 8 .6,
An entity groups financial instruments into classes that are appropriate to the nature of the information disclosed, and that take into account the characteristics of those financial instruments. In these illustrative financial statements, the line items in the statement of financial position reflect the Groups activities. Accordingly derivatives are presented either as trading assets or liabilities, or derivative assets or liabilities held for risk management purposes, to reflect the Groups two uses of derivatives. Derivatives held for risk management purposes include qualifying hedge instruments and non-qualifying hedge instruments held for risk management purposes rather than for trading.
2.
IFRS 7 .23(b)
When applicable, an entity discloses a description of any forecast transaction for which hedge accounting had previously been used, but which is no longer expected to occur.
187
Reference

20. Derivatives held for risk management1
In millions of euro Assets 2011 Liabilities Assets 2010 Liabilities
IFRS 7 .22(b)
Instrument type: Interest rate Credit Equity Foreign exchange
404 74 80 300 858
225 64 94 445 828
309 67 73 277 726
192 55 92 450 789
IFRS 7 .22(a)
Fair value hedges of interest rate risk The Group uses interest rate swaps to hedge its exposure to changes in the fair values of its fixed rate euro notes and certain loans and advances attributable to changes in market interest rates. Interest rate swaps are matched to specific issuances of fixed rate notes or loans. The fair values of derivatives designated as fair value hedges are as follows:
IFRS 7 .22(b)
Instrument type: Interest rate

IFRS 7 .22(a)
175
99
101
89
Cash flow hedges of foreign currency debt securities issued2 The Group uses interest rate and cross-currency swaps to hedge the foreign currency and interest rate risks arising from its issuance of floating rate notes denominated in foreign currencies. The fair values of derivatives designated as cash flow hedges are as follows:
IFRS 7 .22(b)
Instrument type: Interest rate Foreign exchange
210 133 343
117 288 405
151 99 250
95 269 364
IFRS 7 .23(a)
The time periods in which the hedged cash flows are expected to occur and affect the consolidated statement of comprehensive income are as follows:
In millions of euro Within 1 year 1-5 years Over 5 years
31 March 2011 Cash inflows Cash outflows 31 March 2010 Cash inflows Cash outflows
IFRS 7 .23(c)
798 674
2,145 1,980
115 187
455 525
1,790 2,085
10 12
For the year ended 31 March 2011 net losses of 17 million (2010: net losses of 14 million) relating to the effective portion of cash flow hedges were recognised in other comprehensive income.
188
189
Reference

20. Derivatives held for risk management (continued) Net investment hedges The Group uses a mixture of forward foreign exchange contracts and foreign currency denominated debt to hedge the foreign currency translation risk on its net investment in foreign subsidiaries. The fair value of derivatives designated as net investment hedges are as follows:
IFRS 7 .22(a)
IFRS 7 .22(b)
Instrument type: Foreign exchange
85
93
77
78
US dollar denominated debt, which is included within debt securities issued (see note 30), is used to hedge the net investment in the Groups subsidiaries in the Americas with a US dollar functional currency and has a fair value of 965 million (2010: 831 million) at the reporting date. Other derivatives held for risk management The Group uses other derivatives, not designated in a qualifying hedge relationship, to manage its exposure to foreign currency, interest rate, equity market and credit risks. The instruments used include interest rate swaps, cross-currency swaps, forward contracts, futures, options, credit swaps and equity swaps. 21. Loans and advances to banks
Loans and advances to banks Less specific allowances for impairment
5,584 (12) 5,572
4,712 (5) 4,707
IFRS 7 .16 IFRS 7 .20(e)
Specific allowances for impairment Balance at the beginning of the reporting period Impairment loss for the year: Charge for the year Effect of foreign currency movements Effect of discounting Balance at 31 March
5 7 1 (1) 12
5 5
190

IFRS 7 8 .6,
An entity groups financial instruments into classes that are appropriate to the nature of the information disclosed, and that take into account the characteristics of those financial instruments. Loans and advances as presented in the statement of financial position include loans and advances that are carried at amortised cost and those that have been designated upon initial recognition at fair value through profit or loss. However, other presentations are possible.
191
Reference

22. Loans and advances to customers1
IFRS 7 .8(a)(i) IFRS 7 .8(f)
Loans and advances to customers at fair value through profit or loss Loans and advances to customers at amortised cost
3,986 59,084 63,070
3,145 53,660 56,805
IAS 1.61
At 31 March 2011 27 ,137 million (2010: 24,262 million) of loans and advances to customers are expected to be recovered more than 12 months after the reporting date. Loans and advances to customers at amortised cost
Gross Impairment amount allowance 2011 Carrying amount Gross Impairment amount allowance 2010 Carrying amount
In millions of euro
Retail customers: Mortgage lending Personal loans Credit cards Corporate customers: Finance leases Other secured lending Reverse repos
14,856 4,164 2,421 939 32,059 6,318 60,757
(309) 14,547 (225) 3,939 (251) 2,170 (17) 922 (871) 31,188 6,318 (1,673) 59,084
13,629 3,621 2,284 861 28,653 6,134 55,182
(268) 13,361 (207) 3,414 (241) 2,043 (16) (790) 845 27 ,863 6,134
(1,522) 53,660
Allowances for impairment

In millions of euro IFRS 7 .16 IFRS 7 .20(e) 2011 2010
Specific allowances for impairment Balance at the beginning of the reporting period Impairment loss for the year: Charge for the year Recoveries Effect of foreign currency movements Effect of discounting Write-offs Balance at 31 March Collective allowances for impairment Balance at the beginning of the reporting period Impairment loss for the year: Charge for the year Balance at 31 March Total allowances for impairment
1,324 197 (18) 7 (10) (47) 1,453
1,133 191 (3) 9 (6) 1,324
IFRS 7 .16
198 22 220 1,673
174 24 198 1,522
IFRS 7 .20(e)
192

IAS 17 .47 (c)-(e)
An entity discloses, when applicable, the unguaranteed residual values accruing to its benefit, the accumulated allowance for uncollectible minimum lease payments receivable, and any contingent rents recognised as income in the period. Under IAS 39 financial assets, other than those classified as held for trading, may be designated upon initial recognition at fair value through profit or loss, in any of the following circumstances, if they:
2.
IAS 39.9, 11A
eliminate or significantly reduce a measurement or recognition inconsistency (accounting mismatch) that would otherwise arise from measuring assets and liabilities or recognising the gains or losses on them on different bases; are part of a group of financial assets and/or financial liabilities that is managed and whose performance is evaluated and reported to key management on a fair value basis in accordance with a documented risk management or investment strategy; and are hybrid contracts where an entity is permitted to designate the entire contract at fair value through profit or loss.
For 2010 this note demonstrates the fair value option for loans and advances of the Groups investment banking segment that are managed and evaluated on a fair value basis as part of its documented risk management and investment strategy. However, other presentations are possible. For 2011 such loans are mandatorily accounted for as at fair value through profit or loss under IFRS 9 as they are not held in a business model whose objective is to hold assets in order to collect contractual cash flows.
193
Reference

22. Loans and advances to customers (continued) Finance lease receivables1 Loans and advances to customers at amortised cost include the following finance lease receivables for leases of certain property and equipment where the Group is the lessor:
IAS 17 .47 IAS 17 .47(f)
IAS 17 .47(a) IAS 17 .47(a)(i) IAS 17 .47(a)(ii) IAS 17 .47(a)(iii)
Gross investment in finance leases, receivable: Less than one year Between one and five years More than five years Unearned finance income Net investment in finance leases
251 805 104 1,160 (221) 939 205 650 84 939
203 741 106 1,050 (189) 861 181 597 83 861
IAS 17 .47(b)
IAS 17 .47(a) IAS 17 .47(a)(i) IAS 17 .47(a)(ii) IAS 17 .47(a)(iii)
Net investment in finance leases, receivable: Less than one year Between one and five years More than five years
Loans and advances to customers at fair value through profit or loss On adoption of IFRS 9 certain loans and advances to customers held by the Groups investment banking segment have been classified as measured at fair value through profit or loss as they are not held within a business model with the objective to hold assets in order to collect contractual cash flows. No loans and advances to customers have been designated under IFRS 9 as measured at fair value through profit or loss. Prior to adoption of IFRS 9 these loans and advances to customers held by the investment banking business were designated at fair value through profit or loss as the Group manages these loans and advances on a fair value basis in accordance with its documented investment strategy.2 Internal reporting and performance measurement of these loans and advances are on a fair value basis.
IFRS 7 .9(a), 9(b)
At 31 March 2010 the maximum exposure to credit risk on loans and advances designated at fair value through profit or loss was 3,145 million. The Group has mitigated the credit risk exposure to these loans and advances by purchasing credit risk protection in the form of credit derivatives. At 31 March 2010 these derivative contracts provided a notional principal protection of 2,325 million. Details of changes in the fair value recognised on these loans and advances on account of credit risk changes and fair value changes on the related derivatives are set out below:
In millions of euro For the year Cumulative 2010 2010
IFRS 7 .9(c), 9(d)
Loans and advances at fair value through profit or loss Related credit derivative contracts
IFRS 7 .11(a)
32 (33)
11 (12)
The change in fair value attributable to changes in credit risk, as disclosed above, is determined based on changes in the prices of credit-default swaps referenced to similar obligations of the same borrower where such prices are observable or, where they are not observable, as the total amount of the change in fair value that is not attributable to changes in the observed benchmark interest rate or in other market rates.
194

IFRS 7 8 .6,
An entity groups financial instruments into classes that are appropriate to the nature of the information disclosed, and that take into account the characteristics of those financial instruments. In these illustrative financial statements, on adoption of IFRS 9, the investment securities caption in the statement of financial position includes securities measured at amortised cost, fair value through profit or loss, and in the case of equity securities, designated at fair value through other comprehensive income. However, other presentations are possible. Prior to adoption of IFRS 9, the investment securities caption in the statement of financial position included available-for-sale securities, held-to-maturity securities and securities that were designated upon initial recognition at fair value through profit or loss. However, other presentations are possible.
2.
IFRS 9.4.1.5
Under IFRS 9, financial assets may be designated upon initial recognition at fair value through profit or loss if doing so eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise from measuring assets and liabilities or recognising the gains or losses on them on different bases. Prior to adoption of IFRS 9, under IAS 39, financial assets, other than those classified as held for trading, may be designated upon initial recognition at fair value through profit or loss, in any of the following circumstances, if they:
IAS 39.9,11A
These illustrative financial statements demonstrate the fair value option for investment securities where the Group holds related derivatives at fair value through profit or loss, and designation therefore eliminates or substantially reduces an accounting mismatch that would otherwise arise. However, other presentations are possible.
195
Reference

23. Investment securities1
IFRS 7 .8(a)(i) IFRS 7 .8(a)(ii) IFRS 7 .8(f) IFRS 7 .8(h)

IAS 1.61

IFRS 7 .21, B5(aa)
IFRS 7 .9(a), 9(b)
IFRS 7 .9(c), 9(d)
IFRS 7 .11(a)
nvestment securities designated as at fair value through profit or loss I 2,879 3,239 nvestment securities mandatorily measured at fair value through I profit or loss 1,939 nvestment securities measured at amortised cost I 1,457 nvestment securities measured at fair value through other I comprehensive income 27 Held-to-maturity investment securities 101 Available-for-sale investment securities 1,929 6,302 5,269 t 31 March 2011 2,668 million (2010: 2,613 million) of investment securities are expected A to be recovered more than 12 months after the reporting date. nvestment securities designated at fair value through profit or loss2 I n millions of euro I 2011 2010 orporate bonds C 2,622 2,602 sset-backed securities A 257 500 ebt securities D 2,879 3,102 quities E 137 2,879 3,239 Investment securities have been designated at fair value through profit or loss upon initial recognition when the Group holds related derivatives at fair value through profit or loss, and designation therefore eliminates or significantly reduces an accounting mismatch that would otherwise arise. t 31 March 2011 the maximum exposure to credit risk on investment securities designated A at fair value through profit or loss was 2,879 million. The Group has mitigated the credit risk exposure on these investment securities by purchasing credit risk protection in the form of credit derivatives. At 31 March 2011 these derivative contracts provided a notional principal protection of 967 million. etails of changes in the fair value recognised on these investment securities on account of D credit risk changes and fair value changes on the related derivatives are set out below. For the year Cumulative n millions of euro I 2011 2011 nvestment securities at fair value through profit or loss I (84) (30) elated credit derivative contracts R 32 12 he change in fair value attributable to changes in credit risk, as disclosed above, is determined T based on changes in the prices of credit-default swaps referenced to similar obligations of the same borrower where such prices are observable as such credit swaps reflect best the market assessment of credit risk of a particular financial asset. Where such prices are not observable, the change in fair value attributable to change in credit risk is determined as the total amount of the change in fair value that is not attributable to changes in the observed benchmark interest rate or in other market rates. In the absence of specific observable data such approach provides a reasonable approximation of changes in credit risk as it estimates the change of margin above the benchmark that the market may require for the financial asset.
196
197
Reference

23. Investment securities (continued) Investment securities mandatorily measured at fair value through profit or loss
IFRS 7 .11A(a), (b)

IFRS 7 .11A(c), (d)

IFRS 7 .11A(e)
n millions of euro I Note 2011 2010 sset-backed securities A 523 orporate bonds C 773 overnment bonds G 77 etained interests in securitisations R 35 98 ebt securities D 1,471 quity securities E 468 1,939 nvestment securities measured at fair value through other comprehensive income I t 31 December 2010 the Group designated certain investments in equity securities as at A fair value through other comprehensive income as listed below. These investments were classified as available-for-sale in the 2010 comparative information. This designation was chosen as the investments are expected to be held for the long-term for strategic purposes. Fair value at Dividend 31 March income recognised n thousands of euro I 2011 2010 2011 2010 nvestment in XY Trust Company I 15 1 nvestment in AB Securities I 12 1 27 2 uring the year there were no transfers of any cumulative gain or loss within equity relating to D nvestment securities measured at fair value through other comprehensive income. i nvestment securities measured at amortised cost I n millions of euro I Note 2011 2010 overnment bonds G 747 orporate bonds C 635 sset-backed securities A 200 pecific allowances for impairment S (125) ebt securities D 1,457 -
198
199
Reference

23. Investment securities (continued) Held-to-maturity investment securities
In millions of euro
Note
2010
Government bonds Corporate bonds Debt securities Available-for-sale investment securities Government bonds Asset-backed securities Corporate bonds Retained interests in securitisations Debt securities Equity securities with readily determinable fair values Unquoted equity securities at cost
56 45 101
36
653 358 542 87 1,640 265 24 1,929
IFRS 7 .16
IFRS 7 .20(e)
Specific allowances for impairment against available-for-sale investment securities Balance at the beginning of the reporting period Impairment loss for the year: Charge for the year Effect of discounting Balance at 31 March
21 116 (2) 135
Reclassifications out of available-for-sale investment securities This note is relevant for the comparative period only. On adoption of IFRS 9 the assets reclassified under IAS 39 were classified in accordance with the transition requirements of IFRS 9 (see note 7(b)). With effect from 15 September 2008, the Group reclassified certain available-for-sale investment securities to loans and advances to customers. The Group identified financial assets that would have met the definition of loans and receivables (if they had not been designated as available-for-sale) for which at the date of reclassification it had the intention and ability to hold them for the foreseeable future or until maturity. There were no reclassifications of available-for-sale investment securities to loans and advances to customers during the year ended 31 March 2010.
IFRS 7 .12A(a), (b)
The reclassifications were made with effect from 15 September 2008 at fair value at that date. The table below sets out the financial assets reclassified and their carrying and fair values:
2010 Carrying value
In millions of euro
Amounts reclassified
Fair value
Available-for-sale investment securities reclassified to loans and advances to customers
425
380
341
200
201
Reference
23. Investment securities (continued) Reclassifications out of available-for-sale investment securities (continued) IFRS 7 .12A(d), (e) The table below sets out the amounts actually recognised in profit or loss and other comprehensive income in respect of the financial assets reclassified out of available-for-sale investment securities: 2010
Profit or loss Other comprehensive income
In millions of euro
Period after reclassification Available-for-sale investment securities reclassified to loans and advances to customers: Interest income Net impairment loss on financial assets Amount transferred from fair value reserve to profit or loss
20 (18) 2
2 2
IFRS 7 .12A(e)
The table below sets out the amounts that would have been recognised in the year following reclassification if the reclassifications had not been made: 2010
In millions of euro Profit or loss Other comprehensive income
Available-for-sale investment securities reclassified to loans and advances: Interest income Net impairment loss on financial assets Net change in fair value
20 (30) (10)
(8) (8)
202
Note Reference Explanatory note 1. For a more comprehensive illustration of disclosures that may be applicable to property, plant and equipment, see the August 2010 edition of our publication Illustrative financial statements.
IAS 23.26
2.
An entity discloses the amount of borrowing costs capitalised during the year, and the capitalisation rate used to determine the amount of borrowing costs eligible for capitalisation.
203
Reference

24. Property and equipment1
In millions of euro Land and buildings IT Fixtures Total
IAS 16.73(d), (e)
equipment and fittings
Cost Balance at 1 April 2009 Acquisitions Disposals Balance at 31 March 2010 Balance at 1 April 2010 Acquisitions Disposals Balance at 31 March 2011 Depreciation and impairment losses Balance at 1 April 2009 Depreciation for the year Disposals Balance at 31 March 2010 Balance at 1 April 2010 Depreciation for the year Disposals Balance at 31 March 2011
IAS 1.78(a)
234 24 (14) 244 244 34 (26) 252
154 21 (5) 170 170 32 (15) 187
78 18 (5) 91 91 22 (6) 107
466 63 (24) 505 505 88 (47) 546
37 6 (4) 39 39 7 (7) 39
53 9 (1) 61 61 10 (3) 68
24 4 (1) 27 27 4 (1) 30
114 19 (6) 127 127 21 (11) 137
Carrying amounts Balance at 1 April 2009 Balance at 31 March 2010 Balance at 31 March 2011
197 205 213
101 109 119
54 64 77
352 378 409
IAS 23.26
There were no capitalised borrowing costs related to the acquisition of plant and equipment during the year (2010: nil).2
204

IAS 38.122
When applicable, an entity discloses the following:
for an intangible asset assessed as having an indefinite useful life, the carrying amount of that asset and the reasons supporting the assessment of an indefinite useful life. In giving these reasons, the entity describes the factor(s) that played a significant role in determining that the asset has an indefinite useful life; a description, the carrying amount and remaining amortisation period of any individual intangible asset that is material to the financial statements; for intangible assets acquired by way of a government grant and recognised initially at fair value: the fair value recognised initially for these assets; their carrying amount; and whether they are measured after recognition under the cost model or the revaluation model; the existence and carrying amounts of intangible assets whose title is restricted and the carrying amounts of intangible assets pledged as security for liabilities; and the amount of contractual commitments for the acquisition of intangible assets.
IFRS 3.61, B67(d)(iii)-(v), IAS 38.118
In presenting a reconciliation of the carrying amount of intangible assets and goodwill, an entity also discloses, if applicable:
assets classified as held for sale or included in a disposal group classified as held for sale in accordance with IFRS 5 and other disposals; decreases and increases in the carrying amount of intangible assets during the period resulting from impairment losses recognised or reversed in other comprehensive income; and adjustments to goodwill resulting from the recognition of deferred tax assets subsequent to a business combination.
IAS 38.124
If an entity uses the revaluation model to account for intangible assets, then it discloses:

the effective date of the revaluation for each class of the intangible assets; the carrying amount of each class of revalued intangible assets; the carrying amount that would have been recognised had the revalued class of intangible assets been measured after recognition using the cost model; the amount of the revaluation surplus that relates to intangible assets at the beginning and end of the period, indicating the changes during the period and any restrictions on the distribution of the balance to shareholders; and the methods and significant assumptions applied in estimating the assets fair values.
2.
For a more comprehensive illustration of disclosures that may be applicable to intangible assets, including goodwill and the disclosures required by IAS 36 Impairment of Assets for each material impairment loss recognised or reversed during the period, see the August 2010 edition of our publication Illustrative financial statements.
IAS 23.26
3.
An entity discloses the amount of borrowing costs capitalised during the period, and the capitalisation rate used to determine the amount of borrowing costs eligible for capitalisation.
205
Reference

25. Intangible assets1, 2
Purchased Developed software Total
IAS 38.118(c), (e)
In millions of euro
Goodwill
software
Cost Balance at 1 April 2009 Acquisitions Internal development Balance at 31 March 2010 Balance at 1 April 2010 Acquisitions Internal development Balance at 31 March 2011 Amortisation and impairment losses Balance at 1 April 2009 Amortisation for the year Balance at 31 March 2010 Balance at 1 April 2010 Amortisation for the year Balance at 31 March 2011
IAS 38.118(c)
78 78 78 78
94 20 114 114 26 140
116 14 130 130 16 146
288 20 14 322 322 26 16 364
5 5 5 5
20 10 30 30 16 46
18 10 28 28 10 38
43 20 63 63 26 89
Carrying amounts Balance at 1 April 2009 Balance at 31 March 2010 Balance at 31 March 2011
73 73 73
74 84 94
98 102 108
245 259 275
IAS 23.26
There were no capitalised borrowing costs related to the internal development of software during the year (2010: nil).3
206

IAS 36.130(f)
If the recoverable amount of an individual asset, including goodwill, or a cash-generating unit, is determined based on its fair value less costs to sell and a material impairment loss is recognised or reversed during the period, then an entity discloses the basis used to determine fair value less costs to sell. If a material impairment loss is recognised for an individual asset, then an entity discloses:

IAS 36.130(c)
the nature of the asset; and if the entity reports segment information in accordance with IFRS 8 then the reportable segment to which the asset belongs.
IAS 36.130 (d)(iii)
If a material impairment loss is recognised for a cash-generating unit (CGU) and the aggregation of assets for identifying the cash-generating unit has changed since the previous estimate of recoverable amount, then an entity describes the current and former way of aggregating assets and the reasons for changing the way in which the cash-generating unit is identified. If an impairment loss or a reversal thereof is material, then an entity discloses the events and circumstances that led to the recognition or reversal of the impairment loss. applicable, an entity discloses the amount of impairment losses or reversals of impairment losses on revalued assets recognised directly in other comprehensive income during the period. When goodwill allocated to a CGU arose in a business combination in the reporting period, then that goodwill is tested for impairment before the end of that reporting period. However, when the acquisition accounting can be determined only provisionally, it also may not be possible to complete the allocation of goodwill to CGUs before the end of the annual period in which the business combination occurred. In such cases an entity discloses the amount of the unallocated goodwill, together with the reason for not allocating the goodwill to CGUs. However, the allocation of goodwill to CGUs should be completed before the end of the first annual reporting period beginning after the acquisition date. This issue is discussed in our publication Insights into IFRS (3.10.480.20). Instead of calculating the recoverable amount, an entity may use its most recent previous calculation of the recoverable amount of a cash-generating unit containing goodwill, if all of the following criteria are met:
IAS 36.130(a)
IAS 36.126(c), If (d)
2.
IAS 36.133
3.
IAS 36.99
there have been no significant changes in the assets and liabilities making up the unit since the calculation; the calculation resulted in a recoverable amount that exceeded the carrying amount of the unit by a substantial margin; and based on an analysis of the events and circumstances since the calculation, the likelihood that the current recoverable amount would be less than the current carrying amount of the unit is remote.
4.
IAS 36.134 (d)(i), (ii)
An entity discloses a description of managements approach to determining the value applied to each key assumption on which the cash flow projections are based. This publication also illustrates a description of the approach to determining the discount rate. See footnote 1 on page 208.
5.
207
Reference

25. Intangible assets (continued) Impairment testing for cash-generating units containing goodwill1, 2, 3 For the purpose of impairment testing, goodwill is allocated to the Groups operating divisions, which represent the lowest level within the Group at which the goodwill is monitored for internal management purposes, which is not higher than the Groups operating segments as reported in note 6. The aggregate carrying amounts of goodwill allocated to each unit are as follows:
IAS 36.134(a)
In millions of euro
2011
2010
European investment banking European retail banking
53 25 78
53 25 78
IAS 36.126(a), (b)
No impairment losses on goodwill were recognised during the year ended 31 March 2011 (2010: nil). The recoverable amounts for the European investment banking and retail banking units have been calculated based on their value in use. Value in use for each unit was determined by discounting the future cash flows expected to be generated from the continuing use of the unit. Unless indicated otherwise, value in use in 2011 was determined similarly as in 2010. The calculation of the value in use was based on the following key assumptions.
IAS 36.134(c), (d)
IAS 1.125, 36.134(d), (f)
Cash flows were projected based on past experience, actual operating results and the 5-year business plan in both 2010 and 2011. Cash flows for a further 20-year period were extrapolated using a constant growth rate of 2 percent (2010: 3.8 percent), which is based on the long-term forecast GDP growth rates in the countries in which the units operate. The forecast period is based on the Groups long-term perspective with respect to the operation of these units. Pre-tax discount rates of 10 percent and 6 percent (2010: 8 percent and 5 percent) respectively were applied in determining the recoverable amounts for the investment banking and retail banking units. These discount rates were estimated based on past experience and the weighted average cost of capital allocated by the Group to these units.4
The key assumptions described above may change as economic and market conditions change. The Group estimates that reasonably possible changes in these assumptions are not expected to cause the recoverable amount of either unit to decline below the carrying amount.5
208

IAS 36.134(f)
If a reasonably possible change in a key assumption on which management has based its determination of the units (group of units) recoverable amount would cause the units (group of units) carrying amount to exceed its recoverable amount, then an entity discloses:
the amount by which the units (group of units) recoverable amount exceeds its carrying amount; the value assigned to the key assumption; and the amount by which the value assigned to the key assumption must change, after incorporating any consequential effects of that change on the other variables used to measure recoverable amount, in order for the units (group of units) recoverable amount to be equal to its carrying amount.
2.
IAS 12.81(g)
An entity is required to disclose, in respect of each type of temporary difference, the amount of deferred tax assets and liabilities recognised in the statement of financial position. IFRSs are unclear as to what constitutes a type of a temporary difference. Disclosures presented in these illustrative financial statements are based on the statement of financial position captions related to the temporary differences. Another possible interpretation is to present disclosures based on the reason for the temporary difference, e.g. depreciation. In our view, it is not appropriate to disclose gross deductible temporary differences with the related valuation allowance shown separately because, under IFRSs, it is recognised temporary differences that are required to be disclosed. These issues are discussed in our publication Insights into IFRS (3.13.1000.40 50).
3.
IAS 12.82
When applicable, an entity discloses the amount of a deferred tax asset and the nature of the evidence supporting its recognition when:
utilisation of the deferred tax asset is dependent on future taxable profits in excess of the profits arising from the reversal of existing taxable temporary differences; and the entity has suffered a loss in either the current or preceding period in the tax jurisdiction to which the deferred tax asset relates.
4.
IAS 12.87A
An entity discloses the important features of the tax system(s) and the factors that will affect the amount of the potential tax consequences of dividends.
209
Reference

26. Deferred tax assets and liabilities Recognised deferred tax assets and liabilities 2, 3 Deferred tax assets and liabilities are attributable to the following:
In millions of euro Assets Liabilities 2011 Net Assets Liabilities 2010 Net
IAS 12.81(g)(i)
Property and equipment, and software Investment securities at fair value through other comprehensive income vailable-for-sale financial assets A hange in fair value of financial C liabilities due to own credit risk Cash flow hedges Allowances for loan losses Tax loss carry-forwards Share-based payment transactions Other Net tax assets/(liabilities)
(33)
(33)
(21)
(21)
3 31 72 25 150 38 319
(1) (40) (74)
(1) 3 31 72 25 150 (2) 245
28 68 31 125 44 296
(70) (33) (124)
(70) 28 68 31 125 11 172
IAS 12.81(f), 87
Unrecognised deferred tax liabilities4 At 31 March 2011 deferred tax liabilities of 7 million (2010: 6.6 million) for temporary .7 differences of 25.3 million (2010: 22.0 million) related to investments in subsidiaries were not recognised because the Bank controls whether the liabilities will be incurred and it is satisfied that they will not be incurred in the foreseeable future. In some of the countries where the Group operates, local tax laws provide that gains on the disposal of certain assets are tax exempt, provided that the gains are not distributed. At 31 March 2011 the total tax exempt reserves amounted to 0.6 million, which would result in a tax liability of 0.2 million (2010: 0.2 million) should the subsidiaries pay dividends from these reserves. Unrecognised deferred tax assets Deferred tax assets have not been recognised in respect of the following items:
IAS 12.82A
IAS 12.81(e)
Tax losses
10
16
The tax losses relate to an overseas investment banking subsidiary and expire in 2011. Deferred tax assets have not been recognised in respect of these losses because it is not probable that future taxable profit will be available against which the Group can utilise the benefits therefrom.
210

IAS 12.81 (g)(ii)
When the amount of deferred tax recognised in profit or loss in respect of each type of temporary difference is apparent from the changes in the amounts recognised in the statement of financial position, this disclosure is not required. In this illustrative financial statements we have assumed that the retrospective application of IFRS 9 caused the tax liability on securities previously classified as available-for-sale and reclassified to fair value through profit or loss under IFRS 9 to crystallise and be paid during the year ended 31 March 2011. However, this assumption may not be appropriate in many jurisdictions. In these illustrative financial statements, immaterial assets held for sale, investment property and trade receivables have not been disclosed separately in the statement of financial position, but are disclosed separately as a component of other assets, and the disclosures in respect of assets held for sale that may be required by IFRS 5 are not included. For a more comprehensive illustration of the presentation and disclosures that may apply when such items are material, see the August 2010 edition of our publication Illustrative financial statements.
2.
IAS 12.20
3.
IAS 1.54
211
Reference
26. Deferred tax assets and liabilities (continued) IAS 12.81(g)(ii) Movements in temporary differences during the year1
In millions of euro Balance at 1 April Recognised Effect of Recognised in other IFRS 9 in profit or comprehenadoption loss sive income Balance at 31 March
For the year ended 31 March 2011 Property and equipment, and software vailable-for-sale securities2 A nvestment securities measured as I at fair value though other comprehensive income hange in fair value of financial C liabilities due to own credit risk Cash flow hedges Allowances for loan losses Tax loss carry-forwards Share-based payment transactions Other
(21) (70)
70
(12) -
(33) -
28 68 31 125 11 172
70
4 (6) 25 (13) (2)
(1) 3 3 5
(1) 3 31 72 25 150 (2) 245
For the year ended 31 March 2010 Property and equipment, and software Available-for-sale securities Cash flow hedges Allowances for loan losses Tax loss carry-forwards Share-based payment transactions Other
(7) (81) 25 62 38 117 13 167
(14) 6 (7) 8 (2) (9)
11 3 14
(21) (70) 28 68 31 125 11 172
IAS 1.77 IAS 1.54 IAS 1.54(b) IAS 1.54(h) IAS 1.54(h) IAS 7 .48
27. Other assets3

Assets held for sale Investment property Accounts receivable and prepayments Accrued income Restricted deposits with central banks Other
200 84 160 177 56 34 711
165 71 115 114 56 42 563
Restricted deposits with central banks are not available for use in the Groups day-to-day operations. The Group holds some investment property as a consequence of the ongoing rationalisation of its retail branch network. Other properties have been acquired through enforcement of security over loans and advances.
212
213
Reference
27. Other assets (continued) IAS 40.75(d), (e) The carrying amount of investment property is the fair value of the property as determined by a registered independent appraiser having an appropriate recognised professional qualification and recent experience in the location and category of the property being valued. Fair values were determined having regard to recent market transactions for similar properties in the same location as the Groups investment property. Investment property includes a number of commercial properties that are leased to third parties. On average the leases contain an initial non-cancellable period of 10 years. Subsequent renewals are negotiated with the lessee.
IAS 40.76(d)
The increase in fair value of investment property of 15 million (2010: increase of 8 million) is recognised in other income. Rental income from investment property of 3 million (2010: 2 million) is recognised in other income. 28. Deposits from banks
IAS 40.75(f)(i)
In millions of euro
2011
2010
Money market deposits Other deposits from banks Items in the course of collection
17 ,156 478 244 17 ,878
14,431 762 237 15,430
29. Deposits from customers

Retail customers: Term deposits Current deposits Corporate customers: Term deposits Current deposits Other
12,209 26,173 1,412 10,041 3,811 53,646
10,120 24,136 1,319 9,384 3,945 48,904
IAS 1.61
At 31 March 2011 10,808 million (2010: 8,789 million) of deposits from customers are expected to be settled more than 12 months after the reporting date.
214

IFRS 7 8 .6,
An entity groups financial instruments into classes that are appropriate to the nature of the information disclosed, and that take into account the characteristics of those financial instruments. The carrying amounts of each of the categories of financial assets and financial liabilities specified in IFRS 9 are disclosed either in the statement of financial position or in the notes. However, other presentations are possible.
2.
IFRS 9.4.2.2, 9.4.3.5
Financial liabilities, other than those classified as held for trading, may be designated upon initial recognition at fair value through profit or loss, in any of the following circumstances, if they:
These illustrative financial statements demonstrate the fair value option for hybrid debt securities that contain an embedded derivative. However, other presentations are possible. 3.
IAS 7 .50(a)
An entity is encouraged, but not required, to disclose the amount of undrawn borrowing facilities that may be available for future operating activities and to settle capital commitments, indicating any restrictions on the use of these facilities.
215
Reference

30. Debt securities issued1, 2, 3
IFRS 7 .8(e)(i) IFRS 7 .8(g)
Debt securities issued designated as at fair value through profit or loss Debt securities issued at amortised cost
2,409 8,818 11,227
2,208 8,040 10,248
IAS 1.61
At 31 March 2011 8,991 million (2010: 7 ,723 million) of debt securities issued are expected to be settled more than 12 months after the end of the reporting date. Debt securities issued have been designated at fair value through profit or loss when they contain embedded derivatives that significantly modify the cash flows that otherwise would e required to be separated. The amount of change, during the period and cumulatively, in b the fair value of the financial liabilities designated as at fair value through profit or loss that is attributable to changes in the credit risk of these liabilities is set out below.
IFRS 7 .21, B5(a), 9.4.3.5, IAS 39.11A
IFRS 7 .10(a), 9.B5.7 .8 IFRS 7 .10(a) IFRS 7 .10(c)
IFRS 7 .10(d)
n millions of euro I 2011 Balance at the beginning of the reporting period (10) ecognised in other comprehensive income during the year R 3 ransfers to retained earnings on derecognition of the T ssociated liability a alance at 31 March B (7) one of the liabilities designated as at fair value through profit or loss were derecognised N during the year ended 31 March 2011.
2010
IFRS 7 .11(a)
The change in fair value attributable to changes in credit risk on financial liabilities is calculated using the credit spread observed for recent issuances of similar structured debt, adjusted for subsequent changes in the credit spread observed on credit default swaps on the issuing Group entitys senior debt. The carrying amount of financial liabilities designated at fair value through profit or loss at 31 March 2011 was 59 million lower than the contractual amount due at maturity (2010: 43 million lower).
IFRS 7 .10(b), 7 .11(c)
Debt securities at amortised cost: Floating rate debt securities Medium-term notes
5,143 3,675 8,818
4,473 3,567 8,040
IFRS 7 .18, 19
The Group has not had any defaults of principal, interest or other breaches with respect to its debt securities during the years ended 31 March 2011 and 2010.
216

IFRS 7 .7
An entity discloses information that enables users of its financial statements to evaluate the significance of financial instruments for its financial position and performance. An entity discloses the following for each class of provision:
2.
IAS 37 .85 IAS 37 .85(a) IAS 37 .85(b)
IAS 37 .85(c)
a brief description of the nature of the obligation and the expected timing of any resulting outflows of economic benefits; an indication of the uncertainties about the amount or timing of those outflows; when necessary to provide adequate information and the major assumptions concerning future events; and the amount of any expected reimbursement, stating the amount of any asset that has been recognised in that regard.
IAS 37 .92
In extremely rare cases, disclosure of some or all of the information required in respect of provisions can be expected to seriously prejudice the position of the entity in a dispute with other parties. In such cases only the following need be disclosed:

the general nature of the dispute; the fact that the required information has not been disclosed; and the reason why the required information has not been disclosed.
IAS 37 .84
There is no requirement to disclose comparative information in the reconciliation of provisions. In our view, the reversal of a provision should be presented in the same statement of comprehensive income line item as the original estimate. This issue is discussed in our publication Insights into IFRS (3.12.850).
3.
IAS 1.98(f),(g)
When applicable, an entity discloses separately, the items of income and expense related to reversals of provisions and litigation settlements.
217
Reference

31. Subordinated liabilities
Redeemable preference shares Subordinated notes issued
860 4,782 5,642
827 4,158 4,985
IAS 1.61
At 31 March 2011 the redeemable preference shares and subordinated notes issued are all expected to be settled more than 12 months after the reporting date (2010: 4,985 million). The terms and conditions of the subordinated notes issued are as follows:1
Year of In millions of euro maturity 2011 2010
IFRS 7 .7
1,500 million undated floating rate primary capital notes N/A 750 million callable subordinated floating rate notes 2023 500 million callable subordinated notes 2008-2010 300 million callable subordinated floating rate notes 2018 USD1,200 million undated floating rate primary capital notes N/A USD750 million callable subordinated floating rate notes 2012 1,000 million callable subordinated variable coupon notes 2015
1,315 725 300 744 567 1,131 4,782
1,494 743 178 300 888 555 4,158
The above liabilities will, in the event of the winding-up of the issuer, be subordinated to the claims of depositors and all other creditors of the issuer.
IFRS 7 .18, 19
The Group has not had any defaults of principal, interest or other breaches with respect to its subordinated liabilities during the years ended 31 March 2011 and 2010. 32. Provisions2
In millions of euro Note Redundancy Branch Onerous closures contracts Total
IAS 37 .84(a) IAS 37 .84(b) IAS 37 .84(c) IAS 37 .84(d) IAS 37 .84(e) IAS 37 .84(a) IAS 37 .85(a), (b), 1.87(b)
Balance at 1 April 2010 Provisions made during the year Provisions used during the year Provisions reversed during the year3 Unwind of discount Balance at 31 March 2011
15 15
33 2 1 36
28 5 (2) 1 32
23 (1) 22
84 7 (2) (1) 2 90
Redundancy In accordance with the Delivery Channel Optimisation Plan announced by the Group in November 2007 the Group is in the process of rationalising its retail branch network and , related processing functions. The remaining provision relates to the Asia Pacific and American regions and is expected to be used during the year ended 31 March 2012.
218

IAS 19.122
When an entity has more than one defined benefit plan, the disclosures may be made in total, separately for each plan, or in such groupings as are considered to be the most useful, for example, the entity may distinguish groupings by criteria such as geographical location or the risks related to the plans. IAS 19 Employee Benefits requires extensive disclosures in respect of defined benefit plans, not all of which are relevant to the example in these illustrative financial statements.
IAS 19.120A
219
Reference
32. Provisions (continued) IAS 37 .85(a), (b), Branch closures 1.87(b) In accordance with the plans announced by the Group in November 2008, the Group is in the process of rationalising the branch network to optimise its efficiency and improve overall services to customers. One part of this plan continues to involve the closure of some branches. Twenty three of the branches outlined in the Groups Delivery Channel Optimisation Plan were closed during the year ended 31 March 2010 and 2011. The remaining provision relates to the balance of the branches set out in that plan, which will be completed during the year ended 31 March 2012.
IAS 37 .85(a), (b)
Onerous contracts Partly as a result of the Groups restructuring of its retail branch network, the Group is a lessee in a number of non-cancellable leases over properties that it no longer occupies. In some cases the rental income from sub-leasing these properties is lower than the rental expense. The present value of the future lease payments less the lease receivables for those properties has been provided for. 33. Other liabilities
IAS 1.78(d) IAS 1.78(d) IAS 1.78(d) IAS 1.78(d) IAS 1.77 IAS 1.54(j)
Recognised liability for defined benefit obligations Liability for long-service leave Cash-settled share-based payment liability Short-term employee benefits Financial guarantee contracts issued Creditors and accruals Other
14
174 51 44 62 32 51 36 450
158 44 38 57 28 68 38 431
IAS 19.120A(b)
Defined benefit obligations1 The Group makes contributions to two non-contributory defined benefit plans that provide pension and medical benefits for employees upon retirement. The plans entitle a retired employee to receive an annual payment equal to 1/60 of final salary for each year of service the employee provided, and to the reimbursement of certain medical costs. Different benefits apply for directors and executive officers (see note 38).
220

IAS 19.120A (g)(iv) (g)(v) (g)(vi) (g)(vii) (g)(viii) (m)

expected return on any reimbursement right recognised as an asset; actuarial gains and losses recognised in profit or loss; past service cost recognised in profit or loss; the effect of any curtailment or settlement on amounts recognised in profit or loss; the effect of the limit in paragraph 58(b) of IAS 19 on amounts recognised in profit or loss; and the actual return on any reimbursement right recognised as an asset.
221
Reference

33. Other liabilities (continued) Defined benefit obligations (continued) The amounts recognised in the statement of financial position are as follows:
IAS 19.120A(d), (f) IAS 19.120A(d), (f)
Present value of unfunded obligations Present value of funded obligations Total present value of obligations Fair value of plan assets Present value of net obligations Unrecognised actuarial losses Recognised liability for defined benefit obligations Plan assets consist of the following:
In millions of euro
104 122 226 (45) 181 (7) 174
98 110 208 (49) 159 (1) 158
IAS 19.120A(d), (f) IAS 19.120A(f)(i) IAS 19.120A(f) IAS 19.120A(j)
2011
2010
IAS 19.120A(k)(ii) IAS 19.120A(k)(i)
Equity securities Government bonds Property occupied by the Group Banks own ordinary shares
13 12 15 5 45
9 19 16 5 49
2010
IAS 19.120A(c)
Movement in the present value of defined benefit obligations

In millions of euro 2011
IAS 19.120A(c)(iv) IAS 19.120A(c)(vi) IAS 19.120A(c)(i), (ii)
Liability for defined benefit obligations at the beginning of the reporting period Actuarial losses Benefits paid by the plan Current service costs and interest (see below) Liability for defined benefit obligations at 31 March
208 5 (44) 57 226

2011
190 4 (41) 55 208

2010
IAS 19.120A(e)
Movement in plan assets

In millions of euro
IAS 19.120A(e)(iv) IAS 19.120A(e)(vi) IAS 19.120A(e)(ii) IAS 19.120A(e)(i)
Fair value of plan assets at the beginning of the reporting period Contributions paid into the plan Benefits paid by the plan Actuarial (losses)/gains Expected return on plan assets Fair value of plan assets at 31 March
49 36 (44) (1) 5 45
Note 2011
47 37 (41) 1 5 49
2010
IAS 19.120A(g)
Expense recognised in profit or loss1

In millions of euro
IAS 19.120A(g)(i) IAS 19.120A(g)(ii) IAS 19.120A(g)(iii)
Current service costs Interest on obligation Expected return on plan assets 14
39 18 (5) 52 4
41 14 (5) 50 6
IAS 19.120A(m)
Actual return on plan assets

222

IAS 19.120(n)
Principal actuarial assumptions are disclosed in absolute terms not, for example, as a margin between different percentages or other variables. If mortality rates are considered a principal actuarial assumption in measuring a defined benefit plan, then an entity discloses the mortality assumptions used at the end of the reporting period. Mortality rates may be significant when, for example, pension benefits are paid as annuities over the lives of participants, rather than as lump sum payments on retirement.
2.
IAS 19.120A (n)(vi)
223
Reference

33. Other liabilities (continued) Actuarial assumptions Principal actuarial assumptions at the reporting date, expressed as weighted averages, were:1
2011 2010
IAS 19.120A(n)
IAS 19.120A(n)(i) IAS 19.120A(n)(ii) IAS 19.120A(n)(iv) IAS 19.120A(n)(v) IAS 19.120A(n)(vi) IAS 19.120A(n)(vi)
Discount rate at 31 March Expected return on plan assets at the beginning of the reporting period Future salary increases Medical cost trend rate Future pension increases
5.0% 5.8% 2.5% 4.5% 3.0%
4.8% 5.9% 2.5% 4.0% 2.0%
Assumptions regarding future mortality are based on published statistics and mortality tables. The average life expectancy of an individual retiring at age 65 is 18 for males and 20 for females.2 The overall expected long-term rate of return on assets is 5.75 percent. The expected long-term rate of return is based on the portfolio as a whole. The return is based exclusively on historical returns, without adjustments. Assumed healthcare cost trend rates have a significant effect on the amounts recognised in profit or loss. A one percentage point change in assumed healthcare cost trend rates would have the following effects:
One percentage point increase One percentage point decrease
IAS 19.120A(l)
IAS 19.120A(o)
In millions of euro IAS 19.120A(o)(i) IAS 19.120A(o)(ii) IAS 19.120A(p)
Effect on the aggregate service and interest cost Effect on defined benefit obligation Historical information
In millions of euro 2011 2010 2009
2 30
(1) (20)
2008
2007
IAS 19.120A(p)(i) IAS 19.120A(p)(i) IAS 19.120A(p)(i) IAS 19.120A(p)(ii)(A)
Present value of the defined benefit obligation Fair value of plan assets Deficit in the plan Experience adjustments arising on plan liabilities Experience adjustments arising on plan assets
226 45 181
208 49 159
190 47 143
159 44 115
154 43 111
(5) (1)
(4) 1
2 (1)
(1) (1)
4 (1)
IAS 19.120A(p)(ii)(B) IAS 19.120A(q)
The Group expects to pay 60 million in contributions to defined benefit plans during the year ended 31 March 2012.
224
Note Reference Explanatory note 1. 2.

IAS 1.79(a)(iii) IAS 1.79(a)(ii) IAS 1.79(a)(vi)
If shares have no par value, then an entity discloses that fact. When applicable, an entity discloses the number of shares issued but not fully paid. When applicable, an entity discloses shares in the entity held by the entity itself or by its subsidiaries or associates. applicable, an entity discloses details of shares reserved for issue under options and sales contracts, including the terms and amounts.
IAS 1.79(a)(vii) When
225
Reference

34. Capital and reserves Share capital and share premium
Ordinary shares In millions of shares 2011 2010 Perpetual bonds 2011 2010 Redeemable preference shares 2011 2010
IAS 1.79(a)(iv)
On issue at the beginning of the reporting period Exercise of share options

IAS 1.79(a)(ii)
1,756 3 1,759
1,756 1,756
500 500
500 500
880 880
880 880
On issue at 31 March
The Group has also issued employee share options (see note 14).
IAS 1.79(a)(i), (iii)
At 31 March 2011 the authorised share capital comprised 2 billion ordinary shares (2010: 2 billion), 500 million perpetual bonds (2010: 500 million) and 880 million redeemable preference shares (2010: 880 million). All of these instruments have a par value of 1.1 All issued shares are fully paid.2 The redeemable preference shares are classified as liabilities. The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Bank. Holders of perpetual bonds receive a non-cumulative discretionary coupon of 4.2 percent. Perpetual bonds and preference shares do not carry the right to vote. All shares rank equally with regard to the Banks residual assets, except that perpetual bondholders and preference shareholders have priority over ordinary shareholders but participate only to the extent of the face value of the bonds/shares plus any accrued coupon/dividends. Translation reserve The translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations as well as from the translation of liabilities and gains and losses on derivatives that hedge the Banks net investment in foreign operations. Hedging reserve The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to hedged transactions that have not yet affected profit or loss.
IAS 1.79(a)(v)
IAS 1.79(b)
IAS 1.79(b)
IAS 1.79(b)
he fair value reserve includes the cumulative net change in the fair value of equity T investments measured at fair value through other comprehensive income. When such equity instruments are derecognised the related cumulative amount in the fair value reserve is transferred to retained earnings.
Prior to 1 April 2010 the fair value reserve included the cumulative net change in the fair value of available-for-sale investments, excluding impairment losses and foreign exchange differences on debt instruments, until the investment was derecognised.
Fair value reserve
IAS 1.79(b)
iability credit reserve L he liability credit reserve includes the cumulative changes in the fair value of the financial T iabilities designated as at fair value through profit or loss that are attributable to changes in the l credit risk of these liabilities and which would not create or enlarge an accounting mismatch in profit or loss. Amounts presented in the liability credit reserve are not subsequently transferred to profit or loss. When such instruments are derecognised, the related cumulative amount in the liability credit reserve is transferred to retained earnings. or more information on credit risk of financial liabilities designated as at fair value through F profit or loss see note 30.
226
227
Reference


34. Capital and reserves (continued) Analysis of other comprehensive income, net of tax
n millions of euro I
IAS 21.52(b)
Attributed to equity holders of the Bank

Translation reserve Hedging reserve Fair value reserve Liability credit reserve
Total
IFRS 7 .23(c) IFRS 7 .23(d) IFRS 7 .20(a)(vii)
IFRS 7 .10(a), 9.B5.7 .8
2011 Foreign currency translation differences Net gain/(loss) on hedge of net investment in foreign operations Cash flow hedges: Effective portion of changes in fair value Net amount transferred to profit or loss Fair value reserve: Net gain/(loss) on investments in equity instruments designated as at fair value through other comprehensive income Change in fair value of financial liabilities ue to own credit risk d Total other comprehensive income, net of tax 2010 Foreign currency translation differences Net loss on hedge of net investment in foreign operations Cash flow hedges: Effective portion of changes in fair value Net amount transferred to profit or loss Fair value reserve (available-for-sale financial assets): Net change in fair value Net amount transferred to profit or loss Total other comprehensive income, net of tax
(40) 36 -
(17) 10
(40) 36 (17) 10
(7)
2 (7)
(4)
(7)
(7)
(16)
IAS 21.52(b)
23 (15) -
(14) 8
23 (15) (14) 8
IFRS 7 .23(c) IFRS 7 .23(d) IFRS 7 .20(a)(ii)
(106) 83
(106) 83
(6)
(23)
(21)
228

IAS 1.137(b)
When applicable, an entity discloses the amount of any cumulative preference dividends not recognised. When applicable, an entity discloses the amount of tax consequences of dividends to shareholders that were proposed or declared before the financial statements were authorised for issue, but that are not recognised as a liability in the financial statements.
2.
IAS 37 .86(c)
If applicable, then an entity also discloses the possibilities for any reimbursement with respect to contingent liabilities. When applicable, in respect of a contingent asset, an entity discloses a brief description of its nature and, where practicable, an estimate of its financial effect. When it is not practicable to estimate the potential financial effect of a contingent liability or a contingent asset, an entity discloses that fact. In extremely rare cases, disclosure of some or all of the information required in respect of contingencies can be expected to seriously prejudice the position of the entity in a dispute with other parties. In such cases an entity may disclose only the following:

IAS 37 .89
IAS 37 .91
IAS 37 .92
the general nature of the provision; the fact that the required information has not been disclosed; and the reason why the required information has not been disclosed.
3.
IFRS 7 .13
When an entity that has transferred financial assets in such a way that part or all of the financial assets do not qualify for derecognition (see paragraphs 3.2.1 3.2.23 of IFRS 9), it discloses, for each class of financial assets:

the nature of the assets; the nature of the risks and rewards of ownership to which the entity remains exposed; when the entity continues to recognise all the assets, the carrying amounts of the assets and of the associated liabilities; and when the entity continues to recognise the assets to the extent of its continuing involvement, the total carrying amount of the original assets, the amount of the assets the entity continues to recognise, and the carrying amount of the associated liabilities.
229
Reference

34. Capital and reserves (continued) Dividends The following dividends were declared and paid by the Group for the year ended 31 March:
IAS 1.107
0.15 per ordinary share (2010: 0.15) 0.04 per perpetual bond (2010: 0.04)
264 20 284
264 20 284
IAS 1.137a), 10.13, 12.81(i)
After 31 March 2011 the following dividends were proposed by the directors in respect of 2011. The dividends have not been provided for and there are no tax consequences.1
In millions of euro
0.15 per ordinary share 0.04 per perpetual bond
264 20 284
35. Contingencies2 IAS 37 .86(a), (b) A subsidiary is defending an action brought by a consumer rights organisation in Europe in relation to the marketing of specific pension and investment products from 2002 to 2005. While liability is not admitted, if defence against the action is unsuccessful, then fines and legal costs could amount to 3 million. Based on legal advice, the directors do not expect the outcome of the action to have a material effect on the Groups financial position. 36. Securitisations3 In the ordinary course of business, the Group enters into transactions that result in the transfer of financial assets to third parties or special purpose entities. The information below sets out the extent of such transfers, and the Groups retained interest in transferred assets. Transferred assets
Mumbai mortgage trust Bovu investment trust Wellington unit trust: Transferred assets Retained interest recorded as investment securities London fund
782 1,210 2,562 98 221 4,873
667 1,003 1,203 87 190 3,150
IFRS 7 .13
Mumbai mortgage trust The Group has transferred retail mortgage loans and advances to the Mumbai Mortgage Trust, but has retained substantially all of the credit risk associated with the transferred assets. Due to retention of substantially all the risks and rewards on these assets the Group continues to recognise these assets within loans and advances to customers and the transfers are accounted for as secured financing transactions. The associated liability of 770 million (2010: 650 million), secured by these assets, is included under debt securities and is carried at amortised cost. The Group is exposed to the majority of ownership risks and rewards of this trust and hence, this trust is consolidated.
230

IAS 27 .41(d)
IAS 27 .41(b) IAS 27 .41(a)
the nature and extent of any significant restrictions (e.g. resulting from borrowing arrangements or regulatory requirements) on the ability of subsidiaries to transfer funds to the parent in the form of cash dividends or to repay loans or advances; the reasons why the ownership, directly or indirectly through subsidiaries, of more than half of the voting or potential voting power of an investee does not constitute control; and the nature of its relationship with a subsidiary when it does not own, directly or indirectly through subsidiaries, more than half of the voting power.
231
Reference

36. Securitisations (continued) Bovu investment trust The Group has transferred retail mortgage loans to the Bovu Investment Trust, an entity which is, in substance, controlled by the Group. Accordingly, this trust is consolidated and the loans are included in the Groups statement of financial position. Wellington unit trust The Group has transferred loans and advances secured against investment property to the Wellington Unit Trust, a specialised investment vehicle. The Group has invested in subordinated debt issued by the trust and is a party to interest rate swap transactions on arms length terms with the trust, but has no other continuing involvement in the trust or the transferred assets. The subordinated debt held by the Group is approximately 5 percent of the subordinated debt issued by the trust, and as such the Group has transferred substantially all risks and rewards related to the transferred assets. Accordingly, the transferred assets are not included in these financial statements. The Group does not control this trust and hence, it is not consolidated. The investment in subordinated debt of the trust is included in investment securities. The interest rate swaps are included in trading assets or liabilities. London fund The Group has transferred investment securities to the London Fund, a specialised investment vehicle to which the Group provides investment management services on an arms length basis. The Group has transferred substantially all the risks and rewards associated with these securities and hence, they are derecognised. The Group does not control this fund and hence, it is not consolidated. The management fees are included in fees and commission income (see note 9). The Group has not identified any factors arising from the current market circumstances that could lead to a need for the Group to extend liquidity and/or credit support to these SPEs over and above the existing arrangements or could otherwise change the substance of the Groups relationship with these SPEs. There have been no changes in the capital structures of these SPEs since the Groups assessment for consolidation. 37. Group entities Significant subsidiaries1
Country of incorporation Ownership interest 2011 2010
IFRS 7 .13
IFRS 7 .13
IFRS 7 .13
IAS 24.12
Blue Banking Plc Blue Banking (North America) Blue Banking Pty Ltd Bleu Banking S.A. Blue Banking (Africa) Ltd
United Kingdom United States of America Australia France South Africa
100% 100% 80% 100% 100%
100% 100% 80% 100% 100%
232
Note Reference Explanatory note 1. For a more comprehensive illustration of related party disclosures, see the August 2010 edition of our publication Illustrative financial statements. In our view, materiality considerations cannot be used to override the explicit requirements of IAS 24 for the disclosure of elements of key management personnel compensation. This issue is discussed in our publication Insights into IFRS (5.5.110.20).
2.
233
Reference
38. Related parties1 Parent and ultimate controlling party IAS 1.138(c), 24.12 During the year ended 31 March 2011 a majority of the Banks shares were acquired by [name of new parent] from [name of old parent]. As a result the new ultimate controlling party of the Group is [name].
IAS 24.17
Transactions with key management personnel Key management personnel and their immediate relatives have transacted with the Group during the year as follows:
2011 Maximum Closing balance balance 2010 Maximum Closing balance balance
IAS 24.17(a), (b)
In millions of euro
Mortgage lending and other secured loans Credit card Other loans
7 1 2 10
6 1 2 9
6 1 5 12
6 1 2 9
IAS 24.17(b)
Interest rates charged on balances outstanding from related parties are a quarter of the rates that would be charged in an arms length transaction. The mortgages and secured loans granted are secured over property of the respective borrowers. Other balances are not secured and no guarantees have been obtained. No impairment losses have been recorded against balances outstanding during the period with key management personnel, and no specific allowance has been made for impairment losses on balances with key management personnel and their immediate relatives at the period end. Key management personnel compensation for the year comprised:2
IAS 24.17 (c),(d)
IAS 24.16
Short-term employee benefits Long-service leave Post-employment benefits Share-based payment transactions
12 2 3 4 21
10 2 3 2 17
IAS 19.124(b)
In addition to their salaries, the Group also provides non-cash benefits to directors and executive officers, and contributes to a post-employment defined benefit plan on their behalf. In accordance with the terms of the plan, directors and executive officers retire at the age of 60 and are entitled to receive annual payments equivalent to 70 percent of their salary at the date of retirement until the age of 65, at which time their entitlement falls to 50 percent of their salary at the date of retirement. Executive officers also participate in the Groups share option programme (see note 14).
234
Note Reference Explanatory note 1. For a more comprehensive illustration of disclosures that may be applicable to leases from the lessees point of view, including finance leases and contingent rentals see the August 2010 edition of our publication Illustrative financial statements.
IFRS 3.59(b), B66
2.
For each business combination effected after the end of the reporting period but before the financial statements are authorised for issue, an entity discloses the information pursuant to the requirements of IFRS 3 to enable users of its financial statements to evaluate the nature and financial effect of each business combination. The disclosure requirements are similar to those required for business combinations effected during the period. If disclosure of any information is impracticable, then an entity discloses this fact and the reasons for it. These disclosures are illustrated in the August 2010 edition of our publication Illustrative financial statements in the context of a business combination effected during the year and have not been reproduced in this publication.
235
Reference

39. Lease commitments1 Non-cancellable operating lease rentals are payable as follows:
IAS 17 .35
Less than one year Between one and five years More than five years
352 1,408 5,914 7 ,674
322 1,288 5,152 6,762
IAS 17 .35(d)
The Group leases a number of branch and office premises under operating leases. The leases typically run for a period of up to 20 years, with an option to renew the lease after that period. Lease payments are increased every three to five years to reflect market rentals.
40. Subsequent event2 Acquisition of ABC Bank IAS 10.21, 22(a) On 22 May 2011 the Group announced its offer to acquire all of the shares of ABC Bank for 5.0 billion. The transaction has still to be approved by the Groups shareholders and by regulatory authorities. Approvals are not expected until late in 2011. Due to the early stage of the transaction, an estimate of the financial effect of this proposed acquisition cannot be made reliably.
236

IAS 1.10, 81(b)
This Appendix illustrates the two statements approach, consisting of a separate income statement displaying profit or loss, and a second statement displaying the components of other comprehensive income. An entity may present the components of profit or loss either as part of a single statement of comprehensive income or in a separate income statement. When an entity elects to present two statements, the separate income statement is part of a complete set of financial statements and is presented immediately before the statement of comprehensive income.
IAS 1.12
237
Reference
Appendix I
Consolidated income statement1
IFRS 7 .20(b) IFRS 7 .20(b), IAS 1.82(b)
Interest income Interest expense Net interest income
8 8
3,301 (1,406) 1,895
3,528 (1,686) 1,842 759 (135) 624 912 81 371 3,830 10 (334) (1,984) (326) (39) (485) 672 (118) 554
IFRS 7 .20(c) IFRS 7 .20(c)
Fee and commission income Fee and commission expense Net fee and commission income Net trading income Net gain/(loss) arising from derecognition of financial assets measured at amortised cost Net income from other financial instruments at fair value through profit or loss Other revenue Revenue Other income Net impairment loss on financial assets Personnel expenses Operating lease expenses Depreciation and amortisation Other expenses Profit before tax Tax expense Profit for the year Attributable to: Equity holders of the Bank Non-controlling interests Profit for the year
9 9
854 (179) 675 1,196 (9) 172 302 4,231 18 (330) (2,282) (344) (47) (397) 849 (187) 662
IFRS 7 .20(a) IFRS 7 .20A, IAS 1.82(aa) IFRS 7 .20(a) IFRS 7 .20(a) IAS 1.82(a)
10 13 11 12
IFRS 7 .20(e) IAS 1.99 IAS 17 .35(c) IAS 1.99, 38.118(d) IAS 1.99 IAS 1.85 IAS 1.82(d), 12.77 IAS 1.82(f)
21, 22, 23 14 24, 25 15
16
IAS 1.83(a)(ii) IAS 1.83(a)(i)
634 28 662 17 0.35
528 26 554 0.29
IAS 33.66
Basic and diluted earnings per share (euro)
238
239
Reference
Consolidated statement of comprehensive income

IAS 1.81(b) IAS 1.82(g) IAS 21.52(b) IAS 21.52(b) IFRS 7 .23(c) IFRS 7 .23(d), IAS 1.92
Profit for the year Other comprehensive income, net of tax Foreign currency translation differences for foreign operations Net gain/(loss) on hedges of net investments in foreign operations Cash flow hedges: Effective portion of changes in fair value Net amount transferred to profit or loss Net change of financial assets measured at fair value through other comprehensive income: Net change in fair value on available-for-sale financial assets
662
554
(40) 36 (17) 10
23 (15) (14) 8
IFRS 7 .20(a)(ii), IAS 1.82(g) IFRS 7 .20(a)(ii), IAS 1.92 IFRS 7 .20(a)(vii) IFRS 9.B5.7 .8 IAS 1.85 IAS 1.82(i)
(106)
Net amount transferred to profit or loss (available-for-sale financial assets) Net gain/(loss) on investments in equity instruments designated as at fair value through other comprehensive income Change in fair value of financial liabilities due to own credit risk Other comprehensive income for the year, net of tax Total comprehensive income for the year Attributable to: Equity holders of the Bank Non-controlling interests Total recognised income and expense for the year
2 (7) (16) 646
83 (21) 533
IAS 1.83(b)(ii) IAS 1.83(b)(i)
618 28 646
507 26 533
2011 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved. The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International. Publication name: Illustrative financial statements: Banks Publication number: 314487 Publication date: June 2011 KPMG International Standards Group is part of KPMG IFRG Limited. KPMG International Cooperative (KPMG International) is a Swiss entity that serves as a coordinating entity for a network of independent firms operating under the KPMG name. KPMG International provides no audit or other client services. Such services are provided solely by member firms of KPMG International (including sublicensees and subsidiaries) in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any other member firm, nor does KPMG International have any such authority to obligate or bind KPMG International or any other member firm, nor does KPMG International have any such authority to obligate or bind any member firm, in any manner whatsoever. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation.

IFRS Illustrative Financial Statements Banks June 2011: KPMG

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IFRS Illustrative Financial Statements Banks June 2011: KPMG

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Illustrative financial statements: Banks

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Other ways KPMG member firm professionals can help

Choice of accounting policies

First-time adopters of IFRSs

Note Reference Explanatory note 1.

Illustrative financial statements: Banks June 2011

Note Reference Explanatory note 1.

IAS 1.60, 61, 63

Illustrative financial statements: Banks June 2011

Consolidated statement of financial position1, 2, 3, 4

826 828 17 ,878 53,646 11,227 5,642 90 74 450 90,661

852 789 15,430 48,904 10,248 4,985 84 124 431 81,847

2,725 3,673 (16) 6,382 156 6,538 97 ,199

2,695 2,948 198 5,841 128 5,969 87 ,816

Illustrative financial statements: Banks June 2011

Note Reference Explanatory note 1.

IAS 1.99, 104

Illustrative financial statements: Banks June 2011

Consolidated statement of comprehensive income1, 2 (single statement approach)

IAS 1.10(b), 81(a) IFRS 7 .20(b) IFRS 7 .20(b), IAS 1.82(b)

Interest income Interest expense3 Net interest income4

3,301 (1,406) 1,895

IFRS 7 .20(c) IFRS 7 .20(c)

21, 22, 23 14 24, 25 15

Illustrative financial statements: Banks June 2011

Note Reference Explanatory note 1.

Illustrative financial statements: Banks June 2011

Consolidated statement of comprehensive income (continued) (single statement approach)

2 (7) (16) 646

(106) 83 (21) 533

IAS 1.83(a)(ii) IAS 1.83(a)(i)

IAS 1.83(b)(ii) IAS 1.83(b)(i)

618 28 646 17 0.35

507 26 533 0.29

Basic and diluted earnings per share (euro)4, 5

Illustrative financial statements: Banks June 2011

Consolidated statement of changes in equity1

IAS 1.108, 109

In millions of euro Note

Share Share capital premium

Balance at 1 April 2009

554 (21) 533

(85) 2,256 439 72 -

25 (284) (259) 2,948

25 (284) (259) 5,841

25 (284) (259) 5,969

Balance at 31 March 2010

Illustrative financial statements: Banks June 2011

Note Reference Explanatory note 1.

Consolidated statement of changes in equity (continued)

IAS 1.108, 109

In millions of euro Note

Share Share capital premium

Translation Hedging reserve reserve

Fair value reserve

Liability credit Retained reserve earnings

Noncontrolling Total interest

Impact of adopting IFRS 9 at 1 April 20101, 2 Restated balance at 1 April 2010

5,969 102 6,071

(4) (7) 2 (7) 634